Mutual Funds vs. Exchange-Traded Funds (ETFs) March 2, 2019
Mutual funds vs. ETFs. Which makes a better investment option? There’s no clear-cut answer, but understanding the differences of each will allow you to pick the best investment to fit your personal investing strategy.
Dave and his team believe in an investing approach that spreads retirement investments equally among four types of mutual funds:
- Growth (U.S. companies that are still experiencing growth)
- Growth and Income (larger U.S. companies that have been around for a long time and offer goods and services people use regardless of the economy)
- Aggressive Growth (companies with volatile growth – usually smaller)
- International (larger non-U.S. companies)
This diversified approach helps you avoid risks that come with investing in single stocks while using the power of the stock market to grow your retirement fund.
A mutual fund is an investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money managers who allocate the fund’s investments and attempt to produce capital gains and/or income for the fund’s investors (Investopedia, 2018).
Exchange-Traded Funds (ETFs)
An ETF, or exchange-traded fund, is a marketable security that tracks a stock index, a commodity, bonds, or a basket of assets. Although similar in many ways, ETFs differ from mutual funds because shares trade like common stock on an exchange, which occur during the trading day – mutual fund transactions can only be completed after the markets close. The price of an ETF’s shares will change throughout the day as they are bought and sold (Investopedia, 2018).
Are ETFs or Mutual Funds Right for You?
Both ETFs and mutual funds provide an easy way to invest in stocks and build a diversified investment portfolio, yet because of differences in how they are designed, they might suit different investors. Ultimately, you’ll need to consider a variety of factors including your tax strategy, the amount of money available to invest, and your overall investment strategy in order to determine which option is right for you.