All about funds: Comparing ETFs and mutual funds
Exchange-traded funds and mutual funds may sound similar, but they have some key differences.
December 15, 2022
If you’ve decided you’d like a more diversified approach to investing, or you don’t want to pick individual stocks, exchange-traded funds (ETFs) and mutual funds can be smart options.
But they sound kind of similar, don’t they? How do we tell them apart?
- They spread your money across different investments, making them more diversified than investing in a single stock.
- They're often overseen by professional money managers who choose the investments in the funds.
- They often follow a theme or category—like a sector, industry, or region.
- They often charge yearly fees called “expense ratios,” which are taken out of the money you invest.
- ETFs trade on an exchange, which means you can buy and sell them throughout the day. Their prices change as they’re bought and sold.
- Mutual funds trade once at the end of the day when the final price is calculated. Everyone gets the same price.
- Mutual funds require regular rebalancing of investments, which can lead to investors paying slightly higher taxes.
- ETF fund managers share exactly what investments are in their fund every day, so you know when changes are made.
- Mutual fund managers delay sharing exactly what investments are in the fund, and instead share these details monthly or quarterly.
Still not sure which to choose?
Remember this: You can invest in an ETF or mutual fund for as little as $1 in your Plynk account. That means you don’t have to risk a lot of money to dip your toe in to get a feel for the process.