Advertisement

Today we are going to discuss the differences between ETFs and mutual funds.  If you are new to trading and investing in the stock market, one of the things you might not be aware of yet is that you don’t necessarily need to purchase individual stocks. While this is a popular choice amongst many traders, there are also some very good opportunities in two types of investments we will cover today.

Buying individual stocks can be somewhat risky, since you are investing in a sole company. One of the ways you can invest with far less risk {though risk is always something to consider} is through buying groups of stocks.

Rather than picking out your own groups of stocks and buying each individually by yourself, there are two popular methods you can choose to purchase groups of stocks without needing to choose them on your own and buy them one by one. The two most popular methods of doing this which we will cover here are Mutual Funds and ETFs.

If you’ve ever heard the term “diversification” this is where these types of investments come in to play. Diversification means you can lower your risk through buying multiple stocks across a broad range of industries.

What this means, is that you will not be dependent on any one sole stock performance, and it helps spread out any losses and gains evenly.

So today, we are going to learn what each of these are, the differences between a ETF versus a mutual fund, as well as eft vs mutual fund performance.

So let’s get started! What is an ETF? What is a Mutual Fund?

etf-versus-mutual-fund-differences

An ETF is what is know as an exchange-traded-fund that tracks an index or commodity or bonds. ETFs are most well known for their ability to be traded like a common stock on an exchange. The price changes throughout the day and they can be bought at anytime during the trading day.

A mutual fund is a group of stocks that is managed by a team of professionals. These are not traded like other stocks, so it is important to understand their differences.

The Difference Between ETFs and Mutual Funds: A Side By Side Comparison

Here are the key differences that you will notice about ETFs:

  • Can be purchased through a brokerage account
  • Can be traded on major stock exchanges any time during the day
  • Their prices fluctuate and go up and down throughout the day
  • Often cost less because they are not managed like a mutual fund
  • There are no minimum amount of shares required – you are not forced to purchase certain amounts

Now let’s compare this to a Mutual Fund:

  • Must be purchased through a mutual fund company
  • They are only priced at the end of the day after the market closes
  • They are managed by a team of professionals, which can cause them to be a higher cost
  • Mutual Funds often have minimum purchase requirements to invest

Now that we’ve gone over ETFs versus Mutual Funds, you are prepared to decide which one might be the right choice for your investment strategy. Remember, you are the best person to decide what financial risks you are willing to take and how to invest strategically.

Personally, I prefer ETFs over mutual funds. I believe that it gives you much more control, flexibility, and freedom in making your own financial decisions. They also cost  less to invest in, making it an attractive and enticing alternative to the mutual fund.

I hope you find this comparison between mutual funds and ETFs helpful – if you have any questions, or if you’d like to share your thoughts – comments are always welcome below!

Advertisement