We understand that investing in index exchange trade funds (ETF) can be a good option for beginning investors, but what if you’re also looking at mutual funds, and you want to compare purchase costs between the two?
MyMoneyBlog says to look at the index ETFs Historical Bid/Ask Spread Values and the mutual fund’s NAV (Premium or Discounts to Net Asset Value).
Since ETFs are by definition traded on an open exchange, there can be differences between what people are currently willing to pay (the “bid” price), and what people are willing to sell at (the “ask” price). Even if you assume the ETF is priced correctly at it’s inherent value, this bid/ask spread means you will be overpaying a bit when you buy, and losing a bit when you sell…
…NAV is simply the value of the shares of the mutual fund minus any liabilities like expense ratio. A mutual fund always trades once a day, exactly at its NAV.
We’ll admit we don’t really know much about this particular subject, but we’ve bookmarked it for when we’re older. The post also has links to different sites that reveal different fund’s historical data. — BEN POPKEN
Tools For Evaluating Index ETF vs. Mutual Fund Purchases [My Money Blog]
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