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ETFs & Mutual Funds

ETF is short for Exchange Traded Fund. Those are investment funds that are traded on stock exchanges, similar to individual stocks. A fund is typically a diversified basket of multiple stocks, bonds, commodities, or other financial instruments. ETFs have become increasingly popular due to their flexibility, liquidity, and cost-effectiveness compared to traditional mutual funds. 

With that being said, there are many technicals that can be applied to the trading of ETFs while Mutual Funds don’t have that option for you as a trader.  

Examples of ETFs
  • SPDR S&P 500 ETF Trust (SPY): This ETF tracks the performance of the S&P 500 Index, which represents 500 of the largest publicly traded companies in the United States. Among those are companies like Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Amazon.com Inc (AMZN)
  • Invesco QQQ Trust (QQQ): QQQ follows the Nasdaq-100 Index, which includes 100 of the largest non-financial companies listed on the Nasdaq Stock Market. Some of the big players are all three companies we mentioned before as well as NVIDIA Corp. (NVDA), Meta Platforms (META), and Tesla Inc. (TSLA).
  • Vanguard Total Stock Market ETF (VTI): VTI aims to track the performance of the CRSP US Total Market Index, covering the entire U.S. stock market with over 3800 stocks. Some big players are all six companies we mentioned before as well as Alphabet Inc. Class A (GOOGL), JPMorgan Chase & Co. (JPM), and McDonald’s Corp. (MCD).
 
There are way more than just those three ETFs. If this topic catches your interest, you’ll find whole lists of ETFs and indexes online that include companies that you may have never heard before. Please note that this is for educational purposes only. We are not saying that investing in either of those ETFs or companies is either good or bad.

Similarities

Differences

  • Both types of funds are baskets of stocks, bonds, commodities, securities, and other financial instruments.
  • ETFs and Mutual Funds are less risky than investing in single stocks. That is, even if one of the assets is doing poorly, others may be performing just fine.
  • Both types give you access to a variety of national and international stocks and bonds.
  • There are brokerage firms that offer commission-free trading for both types of funds.
  • ETFs can be traded throughout the day like stocks. Mutual funds and index funds can be traded only once a day for the the price set at the end of the trading day (4pm ET).
  • Mutual funds are actively operated by a fund manager while ETFs are not. Meaning, the mutual fund manager decides which securities to pick from whereas ETFs are already set baskets.
  • Mutual funds require more hands-on management. Hence, fees may be higher.
  • ETFs can be bought for as little as $1, whereas mutual funds usually require a greater minimum initial investment.

This should give you an idea of what ETFs and Mutual Funds have to offer. 

Each type of fund has its advantages and disadvantages. Whether you want to go with one or the other depends on your lifestyle and how much risk you are willing to take. 

Remember one thing: You cannot directly invest in the S&P500, Nasdaq Composite, or the Dow Jones, because those are just indexes that measure the performance of its securities. However, through ETFs or index funds you have access to the companies listed on those indexes.

Disclaimer: This content is for informational purposes only and is not intended as financial advice. We try to provide accurate information on personal finance and investing, but it may not apply directly to your individual situation. We are not financial advisors and we recommend you consult with a financial professional before making any serious financial decisions. There are risks associated with any investment which include but are not limited to stocks, bonds, currencies, cryptocurrencies, as well as any other market or investment vehicle. For more Terms, click here.