Are Mutual Funds Making Way For Newer Options?

The term, mutual funds, is a common one and one that is known by almost anyone who has an employer sponsored retirement account or a 401 (k) plan. Yet quite recently, the mutual fund is being passed over for other investment options, thanks to the baby boomers realizing that this type of investments hadn’t made as much gains as possible for them to retire comfortably.

Sadly, the profits that do come from a mutual fund are often minimized due to taxes and transaction costs, and according to a study, almost 80 % of all mutual funds underperformed by 2% in comparison to the stock market.

Young investors are actually trying options such as Exchange-traded funds, unlike mutual funds, which tend to save the investors a lot of money in terms of fees and transactional costs as well. Yes, you won’t have to pay fees for entering or exiting the fund, advertising fees or even commissions to brokers – or at least you will be able to bring your expenses down, unlike the situation where you invest in mutual funds.

However, it’s not true that mutual funds are on their way out as index mutual funds much like exchange traded funds are actually gaining in popularity these days. With such low expenses, it’s no surprise that investors are interested in index mutual funds, and which will mean that the aforementioned of underperformance does not play a role here.

Most experts believe that mutual funds will stick around for a while but the key to their survival depends on the fees that smart investors will not be willing to pay from here on.