Dylan’s Domain: ETFs & Mutual Funds

December 2, 2020

 

Exchange Traded Funds and Mutual Funds have become more popular. They both offer less expensive ways to diversify a portfolio than purchasing shares of a single stock. Although they are alike, ETFs and Mutual Funds also have differences.

Exchange Traded Funds are a marketable security that can track a stock index, commodities, bonds, or a basket of assets. For example, an ETF that is focused on technology stocks will buy a large ownership percentage in companies like Amazon, Apple and Microsoft. From there the Fund will issue shares of its own, which will allow individual investors to purchase shares of that ETF and in turn have ownership of all the stocks that ETF has ownership in. This is in an advantage for individuals because it allows them to own multiple stocks paying multiple commissions. ETFs are easier and cheaper to buy into than a mutual fund.

Mutual Funds are investment vehicles made up of a pool of money collected from many investors for investing in stocks, bonds and money instrument. These funds are operated by professional money managers. Mutual funds offer diversification the same way as an ETF. The main difference between a mutual fund and an ETF is that a mutual fund is priced once a day at the end of the day, while an ETF’s price fluctuates throughout the day like a regularly traded stock. In addition, mutual funds are typically managed with the management buying and selling stocks, while ETFs are generally a fixed group of securities.

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