ETFs Attract Mutual Fund Investors

Physician's Money Digest, June 2006, Volume 13, Issue 6

Wall Street Journal

With exchange-traded funds(ETFs) tipping the scale onmutual funds by offering lowercosts, physician-investors aredrawn in by the bargain,unaware of the possible hiddencosts. The popularity of ETFs has convincedmany to sell their mutual funds andput the money in a similarly constructedETF instead. And while that may be a goodmove for some physician-investors andsave them money over time, an article inthe stresses theimportance of having knowledge of theadditional costs that could potentially outweighyour gains, including the following:

•Redemption fees. These fees oftendisappear after a specific holding period,and aren't usually more than 2%.

•Capital gains taxes. If a mutualfund is owned for less than a year, the taxbill could be as much as 35%.

•Trading commissions. Because ETFstrade like stocks, a commissionmust be paid for each purchaseor sale.

While the switch froma mutual fund mayprove beneficial, thecombination of theseexpenses may notalways outweigh thebenefit of low-cost ETFs.