Orlic agrees: “It’s nothing wrong to use ETFs to reach a certain field, such as the bond market.”
But, given everything that is happening in the economy right now, interest rates and inflation rates are happening in the economy now, she said bond mutual funds may not be a bad idea.
“There are a lot of moving parts, and if you invest with a good actively managed fund, there are a lot of interesting ways to trade and actually outperform ETFs,” she said.
What is active funds?
Positive funds mean managers are updating their compositions as market dynamics change, while ETFs are more static holding baskets, but greater participation in positive funds means they usually charge higher fees as well.
While building a young client, Orin said she might seek a hybrid solution. Funds that may be required in the short term will be invested in a savings account or guaranteed investment certificate on a high interest rate day, while funds invested in the long term will be invested in the ETF.
Whether you choose an ETF or a mutual fund, it is crucial to understand what you invest in.
The prospectus and fact sheet can provide you with an overview, including the highest holdings of the fund, the issuer’s geographical location, debt investment rating, previous fund performance, and its risks. Funds holding government debt are usually at a lower risk, while funds holding corporate debt are at a higher risk.
“I’m always looking at the number of transactions every day, too, because you don’t want something that doesn’t trade often,” Orilic says.
