ETF’s Vs Mutual Funds – Which is Right For You?

With all of the chaos out there in the market today, there are some amazing opportunities to take advantage of in the current climate.  If you’re considering investing some of your hard-earned dollars, here are some important things to keep in mind.

First let’s talk a little bit about ETFs, or exchange-traded funds. An ETF is a portfolio of investments that can be traded on the stock exchange just like regular stocks. They are, for the most part, index funds – which means they track the performance of a particular index or other market benchmark. Put more simply, ETFs allow companies who already own shares to trade groups of these shares instead of cash. But since they are traded like stocks, techniques such as short-selling and buying on margin can be used with ETFs.

Because Mutual Funds are priced only once daily, they are more inflexible. However, while ETFs generally have lower annual operating expenses, you must use a broker when buying them; a brokerage’s fee can add up quite quickly, and you usually need to invest much larger amounts of money to override the commissions. For the more diminutive investments, a more standard mutual fund is likely most suitable. That being said, you can purchase as many or as few ETF shares as you need, without having to meet the oft-required minimums associated with mutual funds.

Another thing to consider is taxes. With most Elf’s you only pay tax on gains when you sell your shares, unlike long term mutual funds that get taxed annually.

All in all, it really depends on your situation and how much you have to invest. If you want to buy in smaller amounts on a consistent basis, it might be better to use a more traditional mutual fund. But if you’re interested in more flexible trading at a moment’s notice, an ETF is probably right for you.

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