Why I buy ETFs rather than mutual funds

I received this question at an investment study session.

Question:
Mako-san, you buy ETFs. So why do you recommend mutual funds to us?

Mako's answer:
I recommend mutual funds not only to you students, but also to my own precious sons.

Most people are satisfied with this answer even though I don't explain the reason.
However, since there are diligent students who want to know the meaning behind it, I will write it down in this note for them.

Which one is more profitable?

If you only consider expenses, ETF > mutual fund
If you consider the reinvestment of dividends, ETF = mutual fund or ETF < mutual fund
If you consider converting dividends into cash, ETFs are fine
Since ETFs have double taxation and foreign taxation on dividends, you must file a tax return

That's roughly how it is.

Excel sheet of the actual amount paid based on expense ratios

How to read this table:
If you invest 50 million yen for 10 years, the difference between 0.3% and 0.1% is 1.5 million yen - 0.5 million yen = 1 million yen

If you invest 50 million yen for 10 years, the difference between 1.0% and 0.1% is 5 million yen - 0.5 million yen = 4.5 million yen

I think you can understand the importance of expense ratios by creating an Excel sheet like this. I am using a large input of 50 million to show the impact, so if your investment amount is 5 million, please divide it by 10. If your investment amount is small, I don't think you need to worry about it that much.
Since it is a matter of perception, please try simulating it according to the assets you can invest to see if you feel it is a lot or a little.

In reality, if you assume that it will grow at a compound annual rate of 7%, this difference will become even larger.

[ETF vs Mutual Fund] Thorough comparison of management costs

For those who want to know exactly which is more profitable, use a heat map. Since it even takes dividend yields into account, this is probably the best for comparison.

What can be said from the heat map below:
・VTI has lower expenses than the mutual fund Rakuten VTI
・VOO has higher expenses than the mutual fund eMAXIS Slim
・Do not buy the mutual fund iFree under any circumstances; buy the ETF QQQ instead

Why I prioritize ETFs

ETFs are real-time, while mutual funds are delayed by a day and only traded once a day.
From the perspective of daily asset management, ETFs feel more intuitive to me.
To have the option of receiving dividends.

I think mutual funds are good when you are young.
If you have a dividend-based lifestyle in mind, ETFs might be the way to go.
This is because I am considering an exit strategy.

Personally, it's a remnant from about 20 years ago when I aspired to do things that looked like an expert, with ETFs being for experts and mutual funds for beginners.
Back then, it was common knowledge that index funds were ETFs.
There is also the history that I chose ETFs because the trust fees and purchase commissions for mutual funds were very high compared to today.

As of 2023, there are excellent mutual funds that can be purchased for free, have reasonable trust fees of around 0.1%, and also earn points through mutual fund mileage programs.

For those who don't have a strong preference, or for those just starting to invest, mutual funds are better. No, they are the best.

I just find ETFs more intuitive because it's a habit of mine to check the movements of the US market every morning when I wake up.

I mainly hold VTI.
It is exactly like the method written in Atsugiri Jason's book. I even thought I could have written this book myself.

Summary

Tax return
Foreign tax credit
Dividends
If you have an allergic reaction to these three words, you should definitely buy mutual funds.