Exchange-traded funds, or ETFs, and mutual funds are often used interchangeably since they share so many similarities and can accomplish the same crucial investment goal: diversifying your portfolio.
Both enable investors to purchase a basket of assets, usually a mix of stocks and bonds, that were selected by teams of expert investors. But there are significant differences between ETFs and mutual funds.
For starters, during regular trading hours for U.S.-based stock exchanges, you can purchase any ETF for whatever price it’s trading at just like with stocks. But with mutual funds, you have to wait until markets are closed to buy or sell them since that’s when their net asset value, a metric that represents the commutative value of all the assets in the fund, is calculated.
Here are some other key differences.
Cost
Consider the following hypothetical example:
There’s a supermarket delivery service that offers customers two different weekly subscription options. Under the first option, your weekly order will be based on what the typical American household buys, which rarely changes over time. You can’t make substitutions or remove any goods that you don’t want. Total cost: $90 a week. And there is no minimum weekly subscription.
Under the second option, you can select a category that best suits your dietary needs. So if you’re vegan you don’t have to worry about getting stuck with chicken breast. And as new products are introduced or certain items go on sale the person…
