 Think tech Hawaii civil engagement lives here and guys. We are back here live in Hollywood, Hawaii It's always this is your host Prince Dice coming to you guys live all the way from Denver, Colorado Even though we're broadcasting in Hawaii But as always I don't have a lot of time and I definitely you guys and girls and have a lot of time So we're gonna jump straight into it So today's video is going to be about as you can see in the description box today's episode. It's going to be about your It's going to be about Mutual funds versus ETFs kind of study. They finally got it out a little bit mutual funds versus ETFs But before we get into that, I'm gonna tell you what we're gonna talk about. We're gonna talk about what our mutual funds We're gonna talk about what a ETFs We're gonna talk about some differences And we're gonna talk about You know, which ones you can use in your Arsenal Portfolio investing or not, but anyway, stay tuned. So we just get into it So the first thing let's talk about what are mutual funds in general? Mutual funds if it was be set in an easy way, it'll be set an easy way to be a like a basket, right? Let's say right now you was interested in a growth stock Which is more so more so like something like a technology stock, right? But you don't know what's technology stocks about it when you look at the technology world right now You have a lot of things you have Amazon you have Google you have Apple which is on this way to be a 10 billion dollar company or whatnot, right? So you have so many different companies that are out there when you look at the technology world Amazon Google Microsoft, you don't know which ones to pick and you also have to ask yourself What if the company I pick holds what if the company I pick fails for example blockbuster I always love to use that example because we all know blockbuster or at least remember I don't know how old you are We all remember how blockbuster everybody went to blockbuster the rent moves now is pretty much known, right? We don't know which technology company will disappear. They're high-risk Princeton what does that have to do with mutual fund? This is exactly what has to do with mutual fund So instead of picking one particular company you're gonna pick a basket, right? So imagine if you had a basket take a basket go to the bit of Amazon in there You throw a little bit of Google in there You throw a little bit of Facebook in there. Do you have a technology stock, right? So what happens is we have a fund manager a fund manager usually on Wall Street works at You know one of the big banks and maybe a JP Morgan, maybe a Goldman Sachs credit Suzy the list goes on They create a mutual fund and it's out of this mutual fund. It may be called technology It may be called real estate in a real real estate. It may be called retail It could be called a number of things, right? So what they do is whatever that target for that Whatever the target is for that mutual fund it piles those things in and when you invest You get a little bit of all of that So instead of just going out and buying Microsoft You can buy mutual a technology mutual fund that has a little bit of Microsoft a little bit of Facebook a little bit of Apple all these technology companies bonded in one Now let's talk about the pros and the cons of having a mutual fund Because it's not is in my opinion and you guys living if you think about this guys and girls I know what you think about this, but if you can't tell me to downside to something I don't think you know it that well, right? If you can't tell me a downside to something I don't think you know it that well. It's like a date. You got on a date, you know a Guy a girl and say hey, what do you like about Suzy or Robert or whatever it keeps me beat you remains? Hey, the guy may say a girl. Hey, I'm everything about Robert is perfect They know nothing wrong with perfect. You're probably think didn't hunt me in place so that kind of relates to the world of investing because of That's how You know, that's the way I was there. You gotta know some downsides. So anyway, I beg risk back to pros and cons of mutual funds The pros of a mutual fund is diversification Right. Why is the diversification a good thing? Let's say if you invested into blockbuster 20 years ago, and that's when you put all your money Now guess where your money is now? Not doing so well, right? Not doing so well due to the fact of not doing so well because you know blockbuster doesn't exist anymore But so, you know when you diversify you have a couple of companies You have numerous amounts of companies So one fails another one still doing well if you had a mutual fund and Netflix was to crash but also you have Facebook in there is doing well Microsoft So you have your money spread out so mutual fund is usually a basket So that's one of the pros of it is that it diversifies and you can pay one fee You play one fee and you pretty much can buy right into a mutual fund Right some mutual funds now another Another good thing about mutual funds is that it diversifies and let's say if you only had a thousand dollars, right? We all know Amazon right now causes about $1,300 and $1,300 is not enough to diversify so you can take $1,300 put it inside of a Technology mutual fund per se and your money could be diversified inside of one fund right so it doesn't cost a whole It was cheaper to diversify So one of the good things is it diversifies another good thing is it's a cheaper way to diversify I'm gonna grab some water here for a second That's my green lucky cup, but anyway Back to the point Now we talked about the good things now. Let's talk about the bad side What is the bad side of mutual funds, right? The bad side of mutual fund is that they are actively managed Hear me out actively Actively manages when a fund manager someone like myself. Let's imagine myself and I'm not a fund manager Let's say it takes on like myself. I'm behind the scenes slowly moving The stocks inside of the mutual fund right to match the mission So I'm moving stocks. I may keep Netflix for a while I may get rid of Netflix and jump into Facebook and may get rid of Facebook and get into a new technology company Whatever the mission of that mutual fund is or something that you can read through the prospectus Right and pronounce that correctly tell you what that mutual fund mission is So what I'm doing is me as a fund manager I'm moving around stocks and moving things around the thing about that is when you're moving around stocks Will you're buying and selling moving things out of in and out of mutual fund those are a cure fees What are fees buying and selling fees just like if you're going to eat trade and you go buy Ten shares of Amazon, you know, it's going to charge you a transaction fee the same thing for a fund manager And when you have those fees guess who ends up paying those fees guess who those fees turn over to you Now mutual fund is not going to see your build and say hey, guess what, you know, we bought a soul We need but no they're going to take that out of the funds that it manages So which means that instead of you getting more grow your growth could be going to transaction fees second of all I'm the fund manager. I have to get paid some type of way. This is the second Disadvantaged or I will say not a diss but a con right I have to get paid. I'm an actual fund manager I'm in here managing your stocks. I'm in here managing your portfolio, right? So even though I'm managing your stocks even though I'm managing your portfolio I have a wife. I have a son little Wesley, right and they like to eat they like to you know, whatever I have to make a living so by me making a living. I have to charge a fee Right, so a lot of things is people buy mutual funds. They don't even know the fees are So you got to look at what the fees are because I'm not doing this for my health I'm not doing it for free. I have to make a living some type of way So I am managing your funds, right? So when I'm managing your funds You're curing a fee the more money I make the less money the fund makes the less money the fund makes the less money You as the investor makes those are told to pros Those are two cons of mutual funds and that is what a mutual fund is now we're going to slide over and we're going to get into an ETF What is the ETF right? So I just Wrote me on my Facebook page of the day and say what is the ETF ETF has kind of I won't say taken over the market But they became pretty popular probably in the most recent 10 Especially the last 10 years for the last 10 or 20 years. It became extremely popular for Mutual funds and not mutual funds, but ETFs ETFs. It's an acronym. It stands for exchange traded fund Again, that is exchange traded fund Now mutual fund not a mutual fund, but a ETF kind of missing myself up there But a ETF what it does is it it tracks a particular industry for for example, let's say the retail industry, right? it passively Tracks the industry remember what I said earlier about what a mutual fund does It is what it is what manage it is actively manage Like I said me the fund manager I'm back here trying to move things and trying to beat the market trying to do whatever the case can be So I'm actively managing right? A ETF passively Manages means that you take me and all I do is I track something for prime example You can have an ETF that tracks the Dow Jones Whatever the Dow Jones does. I just follow it Whatever the Dow Jones does. I just follow it. Whatever the NASDAQ does. I follow it. What if the s&p 500 do I follow it? What if the real estate industry do I follow it? Whatever the bond market? So it just goes on and on it just mimics a particular industry Now the good thing about this is since it is what kind of manage passively Since it is passively managed It is cheaper for the investor, right? Since I'm not here trying to beat the market and do buying sales like a mutual fund I'm doing less work. I pretty much just the autopilot button sort of fees a whole lot cheaper Hold drastically lower in an ETF versus a mutual fund Another good thing about an ETF an ETF trades like a stock Versus a mutual fund a mutual fund In most cases You have to have a certain amount of money to invest into the mutual fund Some mutual funds have a minimum investment of $3,000 Initial investment some of them have an initial investment of $1,000 Some could be $5,000 it has an initial amount of investment. Say if you only had a thousand bucks, right? So with an ETF There is no minimum you just have to buy the shares you buy just like you would buy any other stock You buy it you hold it whatever the case may be Now one of the downsides to ETFs Now the downside to ETFs meaning will say is that hey, well If the market goes down it just follows the market now. It doesn't try to You know beat the market or anything like that or whatever it keeps me beat So some people don't like them because they say hey, well if the market is going to go down It's going to follow with it then What good is it for me to have why can't I have something that's going to buy and sell You know, so even though it's I just thought about it even does a little chillier It's beautiful back in hawaii, but we're shooting line from right now But let's think about it So people don't like that some of the some of the critics of ETFs says hey, they just follow the market, right? Whether the market goes up or down it just follows it just What they call it some people call it a slave or a dummy or autopilot or whatever It doesn't think of his own. It just says hey Back real estate real estate goes up real estate goes down real estate goes to the side real estate, whatever It's just going to go with it, right? So the thing is It's not trying to beat the market So some people don't like it. I won't say don't like it But that's what chris will say one of the things that this will say about themselves exchange trader funds Not at your other den for now, you know Uh, what a mutual fund is and an ETF is what are the big takeaways? What are the differences? the differences are One a mutual fund is actively managed by a fund manager and a cures more fees In order to see if a mutual in my eyes In order to see if a mutual fund is worth it go to a Maybe go to a site like e-trade to the American trade the scott trade Maybe it's some type of it's all type of software is out there That's the mutual fund out or at least 10 years Or 20 years stretch it out 10 years at least right and then you're going to match it to the smp 500 As we all know if you watch this show the smp 500 is what? Exactly it is the benchmark of finance So by it being the benchmark of finance You need to compare your investment to the smp 500, right? So when you do that, that's the way that you can see If a mutual fund has even outperformed If you're paying an active fund manager like myself to beat the market and they're not beating the market You'll be better off just going to invest into the smp 500 Right and it's the sad truth is most mutual funds Over 10 years over a 10-year span or more Do not beat the smp 500 of course Mutual funds have a hot year hot two years hot three Not maybe even five but once you stretch out the performance over 10 years Most of them won't even beat the market 90 something percent won't beat the market So and if a mutual fund has beaten the market the last 10 years, you got to ask yourself the course Do what they always say investing Past performance is not a guarantee of future performance Right just because something performed well 10 years ago does not mean they're going to perform well Five years from now Right those are the things you need to think of When you are looking at a mutual fund when you're looking at a particular stock How they performing compared to the smp 500 Now a etf you can get an etf that tracks the smp 500 You can get an etf that tracks the nasdaq you can get an etf that tracks the dow jones Now when you do all of those You can do it for extremely low fee the fee is way lower for one since it is what Passively managed since it is passively managed. It's way cheaper. So now you have a cheap way of tracking the smp 500 and That's the big difference active passive One is actively managed mutual funds. One is passively managed Mutual funds have more fees usually have more fees than etfs. Why? Mutual funds are actively managed a fund manager creates them and the fund manager manages and whatever the case may be The etfs are just a autopilot. It just follows something, right? If you have the etf that tracks the smp 500 the market crashes tomorrow, guess what it's going to go down exactly with it So that is the difference between etf and a mutual fund when we spoke about what was a mutual fund We spoke about what was an etf We also spoke about what uh, what is the difference between them? and the pros and cons of each Now i'm going to give you my personal opinion. Now, this is my personal opinion This is not any advice to you. This is not telling anybody what to do What are things like that? But throughout my reading and throughout my research what I have noticed is that most companies or most fund managers Most people it's improving. I think it's the statistic is 92 93 percent Of active fund managers do not be The smp 500 over a 10-year span And then the ones that do beat it the superstars that do beat it. They can't continue the success Those are facts, right? Here's another interesting fact. You guys heard of Warren Buffett, right? Had to take a sip of my green lucky cup there But you guys heard of Warren Buffett The reason why I bring this up Warren Buffett did a 10-year bet With a fund manager. I can't think of his name right now. I can't pronounce it I remember I read it out of his 2018 annual report. He bet a hedge fund manager 1 million dollars 1 million dollars will go to your um 1 million dollars will go to your favorite hedge not hedge fund 1 million dollars will go to your favorite charity, right? 1 million dollars will go to your favorite charity, right? What wins 1 million dollars go to the favorite charity? I said that like 10 times But anyway, so what so what they did was Warren Buffett said, hey, I'm just going to invest into the smp 500 You can go out you can go out and get all the hedge fund managers you want Talk to all of these guys. Well connected on wall street You know all the top hedge fund managers do whatever you want to do And we're going to see how you're going to perform in 10 years. Whoever wins whoever has a hell over makes the most money in 10 years Million dollars will go to the hedge to be not the hedge fund, but to the non-profit foundation Off goes the hedge fund manager. He goes to wall street He gets all of the best best and brightest minds and thousands of people over the 10 years He made about 10,000 trades first two years in 2007 2007 2008 He performed very well over the last eight years He performed very poorly compared to the smp 500 He compounded two percent At the end of the 10 years he went from a million dollars to 1.2 million dollars, right? But the smp 500 went from 1 million dollars to 1.8 million dollars That's just pure smp 500, right? Nothing fancy. Nothing, you know Crazy anything like that That's how to stock perform out, you know, I'll perform his hedge fund manager throughout that whole time I think Warren Buffett said he only made one trade and which he went from a bond to a His class b and what the case can be At the end of the day Warren Buffett won because his smp 500 made 1.8 million dollars Versus his hedge fund manager not just a guy who's trading stocks at his house The top hedge fund trend um traders in the world Only made $200,000 over 10 years. I don't even know they calculated the fees I think he did calculate the fees out of that, but you can see So you can see when you have a mutual fund someone who's trying to beat the market It's pretty slim that a person can beat the market on a consistent basis Very very slim that a person can do it professionals Can't do it mostly, you know Most professions cannot beat the smp 500 on a consistent basis. So And etf is a cheap way to get into it. That's not my personal That's just a story that came out of Warren Buffett's 2018 Careholders on a report if you want to read that it's all over the web You can go to berkshirehadtheway.com And read about it when he talks about the story and then I read the whole thing this year So and you know if everything is willing I'll be at the meeting there giving you guys coverage So but as always right we spoke about the mutual fund We spoke about the pros and the cons We spoke about the etf We did the pros and the cons of etf We also spoke about the differences between Then we gave a personal story of Warren Buffett's fund against the index Right because you have index funds that are mutual funds You have mutual funds that track the smp 500 You have mutual funds that track indexes But you got to look at the fees of that mutual fund index fund compared to the new etfs Now who knows what may come on next But fees are dramatically dropping in the financial industry is one thing that I notice Just due to technology due to Now if you want to buy AT&T stock You don't need to call a broker in new york and hey by this you know some people do that You're not going to log on and do it or you can just pick up a handy dandy Phone and do it yourself. So those are the things but anyway, I'm going to get out of here I'm going to wrap it up. I hope this episode has been very educational to you You got any questions drop comments below But I'm here each and every friday well not each every friday every other friday at 3 p.m The prince of investing my name is prince dykes and always stay tuned Drop comments below if you got questions Until the next video podcast or whatever you seem to do crazy around the globe Peace be safe. I'm out and thank you. Thank you