What Are ETFs and Mutual Funds?
ETFs (Exchange-Traded Funds) and mutual funds are both ways to invest in a bunch of stocks, bonds, or other assets all at once. Instead of buying individual stocks one by one, these funds let you buy a “package” of investments, which helps spread out your risk.
How ETFs Work
ETFs trade on the stock market just like regular stocks. This means you can buy and sell them anytime the market is open. They usually track an index, like the S&P 500, which means they try to match how that group of stocks performs. ETFs are popular because they often have low fees and are easy to trade.
How Mutual Funds Work
Mutual funds are a little different. When you buy into a mutual fund, you’re pooling your money with other investors, and a professional manager decides which stocks or bonds to buy. Mutual funds don’t trade on the stock market during the day. Instead, you buy or sell shares at the end of the trading day based on the fund’s price then.
Key Differences Between ETFs and Mutual Funds
One big difference is how they’re traded. ETFs can be bought or sold anytime during market hours, while mutual funds only trade once per day. ETFs usually have lower fees, but some mutual funds offer special features like automatic reinvestment or retirement plans.
Which One Is Better?
Neither is better for everyone—it depends on your goals. ETFs are great if you want flexibility and lower costs. Mutual funds might be better if you want a manager to pick your investments or if you want to invest regularly through a retirement plan.
Both Help with Diversification
Both ETFs and mutual funds help you diversify by giving you a mix of investments in one purchase. This makes it easier to manage risk and grow your money over time.
