ETFs vs. Mutual Funds: Why I Prefer ETFs for Long-Term Investing in the AI Era
This is not financial advice. I am not a financial advisor. This article reflects only my personal experience and perspective.
When people ask me how I invest in the stock market — especially in the AI era — they often assume I’m talking only about individual stocks.
NVIDIA. Apple. Microsoft. The Magnificent Seven.
And while it’s true that I’m a heavily active investor today, my journey into investing didn’t start with stock picking. It started with understanding how the market itself is structured — and how most people are already invested without realizing it.
That’s where ETFs and mutual funds come in.
Why This Question Matters More Than Most People Think
If you’re investing for financial freedom, chances are you already own:
- index funds
- retirement funds
- managed portfolios
And many of those investments are either mutual funds or ETFs.
Understanding the difference between them isn’t a small technical detail — it’s a structural decision that affects long-term returns, fees, and peace of mind, especially when investing in the AI era.
My Early Experience: Following the “Safe” Path
When I first started investing in the stock market in 2020, I did what many people do.
I assumed:
- Mutual funds were safer.
- Professional management meant better results.
- banks knew best
At the time, that felt responsible.
But as I zoomed out — the same way I later did with FAANG and the Magnificent Seven — I started asking better questions.
What Mutual Funds Really Are (In Simple Terms)
Mutual funds are:
- actively managed portfolios
- run by fund managers making buy/sell decisions
- layered with management fees
Those fees often include:
- MERs (management expense ratios)
- trading costs
- administrative overhead
You don’t see them leaving your account — but they quietly reduce your returns over time.
That was my first pause.
The Question That Changed Everything for Me
I asked myself:
If most active managers fail to outperform the market long term, why am I paying extra for them to try?
That question led me directly to ETFs.
What ETFs Actually Do (And Why That Matters)
ETFs (Exchange-Traded Funds):
- track an index
- don’t rely on constant decision-making
- have significantly lower fees
Instead of guessing which companies will win, ETFs reflect market reality — and market reality matters, especially when you understand how concentrated the stock market already is.
ETFs, Market Concentration, and the Magnificent Seven
One important realization connected everything for me:
Most major ETFs are already heavily weighted toward:
- Apple
- Microsoft
- Amazon
- Meta
- NVIDIA
- Tesla
In other words, the Magnificent Seven already dominate ETFs.
So even if you’re not picking stocks, you’re still participating in:
- AI-driven growth
- technology dominance
- market concentration
This is why ETFs fit so naturally into a long-term investing philosophy.
Why ETFs Still Matter — Even for an Active Investor Like Me
Today, I primarily invest in individual stocks.
Today, I primarily invest in individual stocks, enjoy researching companies, and closely follow earnings, technological shifts, and market structure.
I enjoy researching companies.
I closely follow earnings, technological shifts, and market structure.
I enjoy researching companies.
I closely follow earnings, technological shifts, and market structure.
For example, I’ve already invested in:
- AI chip leaders like NVIDIA, AMD, and TSMC
These are companies I understand well, and I’ve spent years building conviction in that space.
But here’s something important — and very personal — that I want to be clear about:
Even as an active investor, I don’t yet pretend to understand every layer of the AI ecosystem.
How I Use ETFs While I’m Still Learning
As the AI era evolves, new layers are becoming increasingly important — especially data centers, cybersecurity, and infrastructure.
There are companies in this space like:
- CrowdStrike
- Palo Alto Networks
- data center and infrastructure companies tied to cloud, security, and enterprise AI
I’m actively learning about these businesses, but I don’t yet have the same depth of understanding or conviction that I do with AI chips.
And this is where ETFs become incredibly valuable for me.
Instead of rushing into individual stocks I don’t fully understand, I’ll choose an ETF that:
- gives me exposure to the sector
- includes multiple major players
- allows me to participate while I learn
This way, I’m not sitting on the sidelines — but I’m also not forcing decisions before I’m ready.
That balance matters.
Why This Approach Fits My Stock Market Mindset
I believe:
- Understanding matters more than speed.
- conviction should be earned, not rushed
- Long-term investing is about structure, not constant action.
ETFs allow me to:
- Stay exposed to growth areas.
- reduce single-company risk
- learn without pressure
They’re not a replacement for stock picking — they’re a bridge.
Let’s be honest: are ETFs truly “safe” investments?
No investment is 100% safe.
ETFs:
- can decline during market downturns
- reflect economic cycles
- move with volatility
But they are transparent.
You always know:
- what you own
- why it moves
- how it’s constructed
That clarity is far more valuable than the illusion of safety.
Why Mutual Funds Fell Out of Favor for Me
Over time, I realized mutual funds:
- add complexity without guaranteed upside
- Relies heavily on the manager’s performance
- quietly erode returns through fees
That doesn’t mean they’re bad.
It means they no longer align with how I think about investing — especially in a market shaped by AI, concentration, and scale.
Final Takeaway
Even though I mostly invest in individual stocks today, ETFs still play an important role in my investing strategy — especially when entering new sectors or learning new layers of the AI ecosystem.
They allow me to:
- gain exposure
- manage risk
- Stay invested while building knowledge.
In the AI era, investing isn’t about knowing everything instantly.
It’s about knowing when to act, when to wait, and how to stay aligned while you learn.
A Gentle Reminder
This is not advice.
This is experience.
This is experience.
The best investment strategy is the one you understand deeply — and can stick with confidently — over time.
