ETF vs. Mutual Fund Performance

When evaluating ETF vs. mutual fund performance, it is wise to have a good understanding of each investment type. A mutual fund is made up of more than one investor who use a fund manager to buy stocks and bonds of varying risk levels for one portfolio. There are mutual funds that are low risk, some that are medium risk and some that are high risk. Many employers offer mutual fund investment as part of their 401K program, and allow employees to spread their money across numerous funds, or choose just one, or a few. The prospectus for each fund is available so 401K account holders can research each mutual fund before deciding how to divide their investment funds.

There are two different types of mutual fund — the indexed fund and the actively managed fund. Indexed funds take a major index and buys accordingly. These funds do not change very often. Actively managed funds change regularly as the fund manager makes modifications to bring more profit. Therefore, many people believe actively managed funds are the way to go. There are those who say mutual funds are not the best type of investment, that they rarely perform better than the S&P 500. However others say mutual funds are simpler and less risky than other types of investments, even if returns are lower.

Now on to the topic of ETFs. ETF stands for exchange traded fund and is a stock market based investment. This type of investment puts stock shares into a basket. The exchange traded fund tries to match the index, not outperform it. For example it may try to match the S&P 500. Or, the fund might aim for the replication of a particular market, for example healthcare or technology to name just two of the many. The same can be done in relation to commodities, which include things like gold and coffee, anything asset that comes from the earth.

Some investors prefer the ETF because they are diversified and shares are sold on the open market. Usually, ETFs are bought by big investors and shares are held for the long term. There are cases where ETFs are short term, for example those used by high risk hedge funds seeking fast and big returns. Although an ETF can be a good addition to an investment portfolio, you should definitely use the services of an investment professional and get their advice on this topic.

So when evaluating ETFs vs mutual fund performance, the differences between these types of investments should be taken into consideration. ETFs offer more flexibility but in many cases mutual funds are more accessible and less risky. Of course you can have both types of investments as part of a balanced portfolio, for some investors this is the preferred strategy. That way you get personal experience on which investment works better for your financial needs.

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