This week we will continue our (Exchanged Traded Fund) ETF vs. Mutual fund discussion. The key differences are highlighted below:
When it comes to investment minimums, ETF’s are usually lower:
- You can buy an ETF for the price of 1 share—commonly referred to as the ETF’s market price. That price could be as little as $50 or as much as a few hundred dollars, depending on the ETF.
- Mutual fund minimum initial investments aren’t based on the fund’s share price. Instead, they’re a flat dollar amount.
- Many mutual funds have minimums from $500 and could reach over a few thousand dollars, even up to $1,000,000 if you are looking at an institutional share class.
For the most part, ETF’s have a lower cost to the investor than a mutual fund, but there are always exceptions. There are many factors contributing to this, such as load fees or transaction costs associated with mutual funds whereas ETF’s tend to be passive investments with less transaction fees over time.
You can time the price of your trade when using an ETF:
- Not only do ETF’s provide real-time pricing, they also let you use more sophisticated order types that give you the most control over your price.
- If you want to keep things simple, that’s OK! Just stick with a market order. It’ll get you the best current price without the added complexity.
- Mutual fund prices are calculated at the end of the day. Regardless of what time of day you place your order, you’ll get the same price as everyone else who bought and sold that day.
You can set up a recurring investment into or out of Mutual Funds. You can’t make automatic investments or withdrawals into or out of ETFs.
As seasoned Fee-Only, Certified Financial Planner™ professionals, we utilize both Mutual Funds and ETFs in our clients’ portfolios. The key to choosing is based on your goals, savings status and time horizon. And this is just one step in the process towards building your portfolio. We strongly recommend working with an experienced professional when it comes to selecting investments to help reach your goals.