The Mutual Fund Trap

The Mutual Fund Trap

Today's Newsletter:

• My Latest

• Efficient Beats Outdated

• The Mutual Fund Trap

• A Money Question

My Latest

This week, I am giving you a peek behind the curtain of money lessons I have learned.

In it, I will teach you:

• Struggles everyone faces with money

• Why more money does not fix those problems

• Key things I have learned over the past 15+ years

You can check it out here ⬇️⬇️⬇️

Efficient Beats Outdated

When I was drafted back in 2009, training was simple.

• You showed up early.

• You ran poles.

• You lifted heavy.

• You hoped it worked.

We didn’t have wearables.

We didn’t have force plates.

We didn’t track data for recovery.

Fast forward to 2025, and training looks nothing like it did back then.

Guys are throwing harder, running faster, and staying healthier longer ~ not because they’re working harder, but because they’re training smarter.

Efficient beats outdated. Every time.

And that same principle applies to how you manage your money.

Let’s dive in…

The Mutual Fund Trap

Let’s talk about something I see far too often in investment portfolios, mutual funds.

For a lot of investors, they’re the default option.

But here’s the truth most advisors won’t tell you:

Mutual funds are outdated and inefficient.

We are going to break this down into four sections:

• What is a mutual fund

• The role taxes play

• The fee dilemma

• What you can learn from this

1. What is a Mutual Fund?

A mutual fund is a basket of investments.

Typically, stocks or bonds that a manager picked for you.

You and thousands of other investors put money into the same pot, and that manager decides how it gets invested.

The first mutual fund was introduced in 1924.

For decades, it was the only real game in town to get professional managers (and diversify your individual stock risk).

Yet in 1993, everything changed when the first ETF was introduced.

By 2008, we were starting to see real growth of passive investing through ETFs.

Yet 2019 was the real breakthrough year:

That’s when the SEC approved the “ETF Rule” (Rule 6c-11), which allowed ETF issuers to launch new ETFs without needing individual exemptive relief from the SEC.

That might sound technical, but here’s what it really means:

ETFs could now be easily structured to mimic mutual funds ~ offering diversified, custom baskets of stocks or bonds, just like a mutual fund, but with the flexibility and tax efficiency of an ETF.

I mentioned taxes, so let’s talk about the role they play here…

2. The Role Taxes Play

If you’ve ever opened your end-of-year statement and seen a surprise capital gains distribution, you’re not alone.

• Mutual funds must distribute capital gains annually to investors (even if you don’t sell your shares).

• ETFs use an “in-kind redemption” mechanism that avoids triggering taxable events for the fund as a whole. That’s why they’re far more tax-efficient.

Ok, that sounds a little confusing. Here is what it really means:

• Mutual funds are going to kick off the gains (so you pay taxes as you go).

• ETFs are going to keep the gains inside (so you pay taxes when you want to).

With mutual funds, you can get hit with a tax bill even if you didn’t sell anything.

That’s because when other people in the fund sell shares, you get taxed on it. Yep, you’re paying for someone else’s gains. That doesn’t happen with more modern options like ETFs or direct indexing.

3. The Fee Dilemma

Internal fund fees can be a huge drag on your total investment return.

This is why at Moment, we focus so heavily on low-cost ETF options for client portfolios.

Consider this data:

• Average mutual fund expense ratio: 0.60%

• Average ETF expense ratio: 0.05%

• Direct indexing: Varies, but often lower with tax benefits baked in

Fees might not seem like a big deal, but they compound over time.

Let’s say you’re investing $1 million. A 0.60% mutual fund fee vs. a 0.05% ETF fee could cost you $5,500 more every single year.

Over 10 years? That’s $55,000… gone.

• We want the best structure.

• We want the most tax-efficient option.

• We want those two to be packed in a low-cost option.

That is where an ETF (or a direct indexing strategy) shines.

4. What You Can Learn From This

If you are investing money outside of retirement accounts.

This is everything outside of your 401(k), IRA, Roth IRA, SEP IRA, etc…

You have to have taxes top of mind.

It is the slow (and silent) killer of your long-term investment returns.

To combat that, you need to ensure you have a structure in place to keep more of what you earn.

• ETFs far outpace mutual funds in their structure.

• ETFs far outpace mutual funds with their fees.

Now look, if you have legacy mutual funds (ones you have held a long time), chances are they have big gains attached to them.

I do not recommend going out and selling them tomorrow.

But I do recommend talking to your financial team about whether they are the best long-term fit.

Is there a way to diversify out of them?

How could you do that to ensure you don’t explode your tax bill?

My friends, you have worked too hard for your money to be sitting in structures that leave the IRS a tip every year.

Simply put, that is what most mutual funds do.

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Modern investing tools like ETFs and direct indexing offer lower costs, better tax control, and more flexibility.

At Moment, we believe your money should work as hard as you do ~ without surprises at tax time.

Until next time my friends!

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A Money Question

What is the best money lesson you learned this year?

For me, it is one that I am constantly reminded of.

The “cool” investment usually isn’t the best one.

The “boring” investment usually is the one that shines.

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3 Ways I Can Help You

💰 Schedule an introductory call with Moment. We help athletes, entrepreneurs, and key employees build and protect wealth.

📹 Check out my YouTube channel. A safe place to get smarter with your money.

📷 Interact with me on Instagram. I provide bite-sized daily content to level up your money game.

Moment Private Wealth, LLC is a Registered Investment Advisor, located in the State of Missouri. Moment Private Wealth provides investment advisory and related services for clients nationally. Moment Private Wealth will maintain all applicable registrations and licenses as required by the various states in which Moment Private Wealth conducts business, as applicable. Moment Private Wealth renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or under an applicable state exemption or exclusion. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice.