Last Updated on Sep 23, 2020 by James W
Saving money for a rainy day or for retirement is something that many people aim to do, but don’t always follow through. Often the problem is that savings and investments can seem confusing, scary, and even overwhelming for those who don’t make a living as a financial planner and investor. When approached in the right way, investments can end up being a very wise move for your future, so it’s important not to let fear or confusion dictate what you do.
Here we’ll take a look at two popular investments options – mutual funds and ETF investments – looking at the basics of each so you can decide which may be a better option for you. When it comes to ETF vs mutual fund investments, there is no one-size fits all answer; rather, it’s about learning all you can and applying it to your own financial portfolio.
What is a Mutual Fund?
As its name suggests, a mutual fund is a collection of money made up by various investors. This money is then used to invest in bonds, stocks, and other types of assets. It’s meant to be a way to invest money in areas that will grow, so you can then walk away with more than you started with. These mutual funds are managed and operated by so-called money managers, who are professionals when it comes to investing.
Where mutual funds have a real advantage is the fact they are user-friendly, meaning they are simple and easy to understand. You can also choose to diversify your funds, meaning you spread around your investment. The cons are that you need to have a top-notch mutual fund manager working for you that makes sound investments and they aren’t always cheap.
What is an ETF Investment?
An ETF stands for exchange-traded funds and, as the name implies, the funds themselves are traded on the public stock exchange. Fund companies are not the ones that distribute ETFs. As for the pricing of an ETF stock, it is set by the public market price rather than the company. Just like with the stock market, the price of an ETF fund will fluctuate as it’s bought and sold.
For those who are looking for lower fees, the ETF option can certainly offer that as they carry much lower fees than mutual funds. If you’re an independent investor, this can be a huge bonus. As an ETF shareholder, you will have a part of the dividends paid.
An ETF fund isn’t as simple as a mutual fund in that there isn’t a professional looking after the investment. There is no money manager here; it’s all in your own hands. What this means is that you have to be comfortable putting in the time to watch your investment.
What Matches Your Lifestyle?
At the end of the day, both an ETF and mutual fund can be a great way to invest and make you money, but as for which one is right for you, it really depends on how involved you want to be and how much money you have to invest.