Mutual Fund Vs. Exchange-Traded Fund: What to know about ETFs

Investment can be an intimidating idea but also an exciting and lucrative adventure. Stocks are particularly of concern to investors since you are putting all of your eggs into one basket. This risk can be mitigated by diversifying your portfolio, but many people opt for mutual funds — a collection of securities that are under a portfolio manager.

Similar to mutual funds, many commissions utilize index funds, such as the S&P 500 and the Dow Jones Industrial Average, in order to track market performance. By maintaining a diversified set of stocks and bonds, these funds are able to attain a fair portrayal of the market progress.

Exchange-Traded Funds (ETFs) are similar to mutual and index funds, at least on the surface. An ETF is composed of a diverse collection of securities, but there are a few differences to note.

Unlike Mutual funds, ETFs are exchanged throughout the day, which is more similar to how a stock operates. So if an ETF has a good price in the morning, you can buy and sell the same day to make a quick profit. Unlike mutual funds, which will rebalance and change composition frequently and with little warning, ETFs provide consistent reports on and all changes to their makeup.

If your only investments are through your workplace’s retirement plan, you might not see an ETF without seeking one out. They are slowly growing in popularity, and you might have an ETF offered through your workplace soon enough.

Otherwise, most brokerage firms can help investors match with the right ETFs.

Today, U.S. investors have invested more than $4 trillion into exchange-traded funds, and they continue to grow in popularity to this day.

Investments are a complicated and difficult area of finances. They can bring a great deal of growth, or suddenly evaporate in your hands. Not to mention the construction and regulation which you need years of study and work experience to truly understand. But if you have an interest in trading and investing, ETFs can be an easy and low-risk way to enter the market.