A client recently requested a video explaining the difference between mutual funds and exchange traded funds (ETFs). We’ll start with a blog, but watch for a video to come soon. This week, we’ll talk about the similarities between mutual funds and ETFs. We found a great source through Vangaurd that provided the following:
You may be surprised by just how similar ETFs and mutual funds really are. Just a few key differences set them apart.
The biggest similarity between ETFs (exchange-traded funds) and mutual funds is that they both represent professionally managed collections, or “baskets,” of individual stocks or bonds.
Both are less risky than investing in individual stocks & bonds
ETFs and mutual funds both come with built-in diversification. One fund could include tens, hundreds, or even thousands of individual stocks or bonds in a single fund. So if 1 stock or bond is doing poorly, there’s a chance that another is doing well. That could help reduce your risk—and your overall losses.
Both offer a wide variety of investment options
ETFs and mutual funds both give you access to a wide variety of U.S. and international stocks and bonds. You can invest broadly (for example, a total market fund) or narrowly (for example, a high-dividend stock fund or a sector fund)—or anywhere in between. It all depends on your personal goals and investing style.
Both are overseen by professional portfolio managers
ETFs and mutual funds are managed by experts. Those experts choose and monitor the stocks or bonds the funds invest in, saving you time and effort. Although most ETFs—and many mutual funds—are index funds, the portfolio managers are still there to make sure the funds don’t stray from their target indexes.
Next week we will be back to discuss the differences.