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ETFs vs. Mutual Funds, Rising Rates, Market Volatility & More

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  • (1:00) - How To Choose Between VOO & VFIAX: What Is The Difference?
  • (4:10) - Why Investors Should Not Time The Market 
  • (6:20) - How To Protect Yourself From Rising Rates
  • (9:00) - When Could We See A Zero Fee ETF?
  • (12:05) - Episode Roundup:

In this episode of ETF Spotlight, I talked with Dr. Derek Horstmeyer, assistant professor at George Mason University School of Business. Dr. Horstmeyer is a regular contributor to the Wall Street Journal. His research focus areas include ETF & mutual fund performance.

We started with a question that I get frequently from our clients: Should they pick an ETF over a similar index fund?

ETFs are not a lot different from passively managed index funds. They however do offer better transparency, intra-day tradability and tax efficiency. 

Dr. Horstmeyer studied the performance of 66 matched ETF/mutual-fund pairs --those with the same holdings and objectives—and found that “if an investor wants to buy and hold an ETF or mutual fund for more than a year, then in general the ETF will make better sense financially than the mutual fund.”

We then discussed market volatility and investor behavior. Dr. Horstmeyer discussed behavioral inefficiencies in a recent WSJ article. His research found that investors lose about 1 to 2 percentage points a year because they tend to pull their money when the market is near a bottom.

Investors should stay focused on their longer-term investing goals during periods of market volatility as trying to time the market is usually a futile exercise.

Fear of rising rates is one of the main reasons for this sell-off. Dr. Horstmeyer studied the performance of stocks during periods of rising interest rates over the past 30 years and found that stocks continue to do well if the Fed raises rates to keep the economy from overheating.

We discussed how investors can protect their portfolio against rising rates. Small-caps and growth stocks outperform their safer counterparts during rate-increase cycles.

Finally, we talked about the fee war in the ETF and mutual fund space. Dr. Horstmeyer had written in February: Zero-Fee ETFs (or Even Negative) Are on the Horizon.

Fidelity recently launched four zero-fee index funds. Should we expect to see a zero-fee ETF soon? Find out on the podcast.

Please visit to learn more about Dr. Horstmeyer’s research.

Make sure to be on the lookout for the next edition of the ETF Spotlight and remember to subscribe! If you have any comments or questions, please email

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