ETFs vs. Mutual Funds

When examining the issue of ETFs versus mutual funds, it helps to have a firm understanding of both types of investments. ETFs are not as well known as mutual funds. The acronym stands for Exchange Traded Funds. By purchasing ETFs, you are purchasing portfolio shares which track the return and yield of the index from which it originated (NASDAQ, Dow Jones, S&P 500, etc.) ETFs are not purchased to outperform the index to which they correspond, but match it. This type of investment has been around since the early 80’s, but has only started to gain popularity within the last decade.

There are some definite advantages to owning ETFs. They are a combination of trading a single stock and holding a diverse portfolio. ETFs can be purchased for the short term, long term or even be purchased on margin. The type of strategy applied to ETFs is called passive management. The manager of the ETFs only modifies the strategy in small ways to keep it aligned with its index. ETFs incur less costs than more active funds and therefore there are less fees which take away from your profit.

Mutual funds are more popular and well-known that ETFs. Most retirement plans include mutual funds. Estimates from the Investment Company Institute state that over 92 million people own mutual funds. These funds are investments that allow groups to put their money together and use a portfolio manager, who then invests the money into different investment types like bonds, stocks and securities. The manager will continue to buy and sell these investments based on the investment style specified by the prospectus. Mutual funds allow you to invest money into one account yet diversify your portfolio by allotting the funds where you want them to go.

When it comes to ETFs vs mutual funds, the winning investment all depends on your goals. ETFs can be short or long term, while mutual funds are more of a long term investment. It may be wise to have both types of investments in your portfolio. If you have questions about either of these investment types, speak to a qualified broker who can help you manage the money you want to invest in a way that suits your goals and your budget. Look for a regulated broker, as these investment professional are upheld to the highest quality standards. The Internet is a good source when it comes to researching brokers and investments.

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