Mutual Funds Give ETFs Run for Money

For some investors, the SPDR ETF has an edge in costs, boasting an expense ratio of 0.08%. Retail investors who put small amounts into the Vanguard fund face an annual expense ratio of 0.15%. But Vanguard shareholders who can invest $100,000 only pay 0.07%. In any case, the open-end fund has a clear cost advantage: Investors can buy the no-load shares for free. To purchase an ETF, you must pay a brokerage commission that is equal to the cost of buying a stock. The cost advantage of an ETF could quickly evaporate for an investor who pays $9 or more to buy shares.

Make no mistake, not all open-end funds are run as efficiently as Vanguard's. In some cases, ETFs are much cheaper to hold than competing open-end funds. But investors considering an ETF need to do careful comparison shopping. Often the differences between ETFs and traditional funds will be small. In the end, the best decision may be to hold a mix of mutual funds and ETFs. Investors should aim to find the choice that best suits their needs -- and not dismiss any fund because it seems out of fashion.