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Why You Need Mutual Funds in Your Portfoli

Mutual Fund Education

Why You Need Mutual Funds in Your Portfolio, Even if You Own ETFs

Tanmoy Roy Dec 23, 2015



At the Most Basic Level – What do ETFs Really Give You?



Why Mutual Funds Suit Most Investor’s Lifestyles


Let’s elaborate more on why that is important:

  • Investments are about ideas
    Getting to know what PE ratio is by reading online, or even studying it formally, is like learning a language. Yes, you learn the alphabet and words but that doesn’t mean you can write a good story or be an engaging speaker. A lot of individual investors have a job and a family to take care of. They usually don’t have a lot of time to research, come up with theories, experiment or learn from their failures by building complexities into their theories. They don’t have the time and opportunity to meet and share ideas with other investment professionals. All of this is the hour-to-hour life of a dedicated investment professional. A lot of people think reading news and listening to analysts will give them the ideas they need to invest. While constantly dabbling in current events does give you a good background, making investment decisions from that can be disastrous. If it is in the news, you are probably already late to the party.
  • Execution of ideas is an art (and science)
    After you decide what to do, building a portfolio across all the asset classes, sectors and security types is not easy. It is not by accident that trade execution is a separate department in most financial institutions. If you don’t have access to automated/ programmable trading tools, or the knowledge of how the markets function for each security type, you will probably not be very effective in your execution—you will not get the best price, miss the right opportunities, make mistakes and not counter your risks properly. On top of all of this are the emotional factors that come into play. Most personalities are not really suited to be a trader. They can be strategic thinkers and advisors, but it takes a different kind of emotional strength to be both alert and ruthlessly patient at the same time. You are not building a winning portfolio in a day or even weeks. It may take months or several business cycles before you get the things you want at the right price and time.


Are ETFs Better Than Mutual Funds in Certain Scenarios?



The Bottom Line


Note: ETF investing might appear to be simple but, behind the scenes, there might be complex derivatives at work (for example read: How to Use Inverse ETFs to Hedge Your Portfolio). This is especially true for short and leveraged ETFs where you might be exposed to the risk, even if it doesn’t feel like you did much.

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