top of page

Mutual Finds VS ETF

How do Mutual Funds and ETFs Differ?

When it comes to investing in equities, it’s generally most efficient to buy mutual funds or ETFs (Exchange-Traded Funds), which are both “baskets of goods.” You can purchase equity in a variety of companies by simply purchasing shares of funds that spread your assets across those companies. This saves you from buying individual stocks and worrying about when to trade from those positions in favor of other companies. Mutual Funds and ETFs at their core, are similar, and generally serve the same purpose, but they have some distinct differences. In this article, we will look at those differences and highlight some critical features of each.


How Are They Managed?

A key difference between mutual funds and ETFs is that mutual funds can, and often are, actively managed by a fund manager. The performance of the fund is closely tied to the fund manager. If they have been managing the fund for an extended period, with a good track record, then the performance is a valuable tool for evaluating the fund. However, if the fund manager has left or been replaced, knowing that the fund’s track record should not be counted upon for reliable evaluation is important. On the other hand, ETFs are generally more process-oriented in their management style. They are passively managed and structured to compete with the performance of a particular index. Some mutual funds fit this description as well.


How Are They Traded?

Another critical difference between these two types of funds is how they are traded. Orders for mutual funds are executed once per day, with the price based on the Net Asset Value (NAV) calculated once daily. Each investor pays the same price as all other investors buying that same fund on that same day. As a result, you don’t see a price fluctuation intraday. ETFs trade like individual stocks. They are bought and sold on an exchange, reflecting lots of price fluctuation throughout the trading day. Because the price fluctuates throughout the day, your cost will likely differ from another investor buying the same fund on the same day.


Are there minimum investments?

Mutual funds do not have to be purchased in whole shares, making them a good option for people just starting to invest. ETFs do not require a minimum initial investment, though they can only be bought in whole share form at their market price. Because of this, buying ETFs for people who are just beginning to invest from zero can be tricky because you may not have enough capital to buy a full share.

What are the costs?

Mutual funds can be bought without trading commissions. But, besides their operating costs, they can carry other fees like sales loads or short-term redemption fees. ETFs have a bid/ask price spread and a premium/discount to the NAV. The price you pay for an ETF may differ from the value of the ETFs underlying holdings. ETFs generally have a cheaper expense ratio than mutual funds. These costs are baked into the price you pay for the fund and won’t be tacked on to your management fee. Also, the expense ratio is taken into account when looking at the performance of the fund.


Which is right for me?

The answer really depends on your situation and what accounts you have. As stated above, each has certain advantages, depending on how much money you’re investing or how long you plan to stay in each fund. Discussing your needs with a financial advisor to help you determine the right fit for your investment portfolio is important. Schedule a meeting with one of our advisors today if you’d like to learn more.



 

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.


Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed.

MUTUAL FUNDS OR ETFS AND THE BENEFITS OF EACH

May 18, 2023

Nick Allen

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm.  The information presented is for educational purposes only and intended for a broad audience.  The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed.  Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner. 

Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed. 

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

Whitaker-Myers Wealth Managers Ranked 6th Best Place to Work in Money Management

Read More...

Whitaker-Myers Wealth Managers Ranked 6th Best Place to Work in Money Management

Insured to Value

Read More...

Insured to Value

Why Make Backdoor Roth IRA Contributions?

Read More...

Why Make Backdoor Roth IRA Contributions?

Other Posts

bottom of page