ETF v Mutual Funds; Why They're Less Risky

Because mutual funds are actively managed, and because their profit depends on Assets Under Management (AUM), their performances are often manipulated by the management in a variety of ways, in order to meet their own goals, that are not necessarily in YOUR best interests as an investor.

At issuee are performance metrics such as short- and long-term performance above peers, marketing to potential investors to grow AUM based on past performance, and avoiding massive redemptions when the market gets sour.

A lot of research is being published that discusses the pros and cons of mutual funds vs. ETFs.

Here are a couple of examples of the issues:

Quarterly "window dressing" - buying or selling certain assets so that the q/q performance appears to be in line with expectations

Unbalanced allocation - Loading up on particular assets to take advantage of dividend payouts or market timing

Overhead fees - decreasing present fees for the appearance of efficiency, only to raise them later

Advertising based on past performance - the large print always looks very enticing, but the fine print continues to say, "past performance is no guarantee of future results"

ETFs aren't perfect, but they seem to suffer fewer "good intentions gone wrong" effects that may be plaguing mutual funds.

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