{ "media_type": "text", "post_content": "Can someone explain why they buy EFTs over index funds? A couple years ago I switched my 401k from target date to index funds? Does it make sense to eventually switch those to EFTs? If so, what's the strategy on when to switch?", "post_id": "5f7dafc3c6ebe9001aef49e2", "reply_count": 5, "vote_count": 0, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

Can someone explain why they buy EFTs over index funds? A couple years ago I switched my 401k from target date to index funds? Does it make sense to eventually switch those to EFTs? If so, what's the strategy on when to switch?

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ETFs generally have lower fees than mutual funds. Target date funds tend to be overweight bonds and don’t offer investors enough to risk. Bonds have had a decent year in 2020, but yields going forward are likely too low and if interest rates rise the bond’s values will fall. If you want to switch there’s really no way of knowing the best time to switch. Take some time to figure out an asset allocation you’re comfortable with and then do it.

Etfs are generally more tax efficient than mutual funds, although that wouldn't matter in a retirement account.

In a non-retirement account, ETF’s generate less capital gains passed through to you as a shareholder annually because of the way they are structured. In general, they look and trade like a stock allowing you to choose when to sell and realize gains strategically. This benefit does not really apply within retirement accounts, so if your goal is to lower expense ratio’s then you are just price shopping your options. Especially within the employer plan. Don’t just pick that word “index” when you see it, make sure you are getting the benefit of that index being cheaper.

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