First, let’s look at the landscape, which has changed dramatically over the last 25 years. The expense ratios respective to both instruments may also vary and the features and functionalities that make either instrument a good match for an individual investor is contingent on the investor’s financial goals, resources, and individual investing preferences.įor investors trying to decide whether mutual funds or ETFs are the right choice, it helps to delve a bit deeper in how they compare and contrast.

Today, index-based mutual funds are common, while ETFs have expanded and grown to include some very complex, exotic, and risky products. Most, though not all, ETFs featured a “passive” management approach, and most, though not all, mutual funds featured an “active” management approach. Years ago, the key difference between mutual funds and ETFs seemed simple. When comparing ETFs and mutual funds, it’s important to note that ETFs and mutual funds are similar in that both represent a professionally managed or index-based “basket” of securities, typically stocks and bonds. Two typical avenues investors might use for diversification are mutual funds and exchange-traded funds (ETFs). “Don’t put all your eggs in one basket” is among the most common pieces of wisdom dispensed to investors. If you’re like many investors saving for retirement or another goal, you’ve heard about portfolio diversification. Learn the characteristics of each type and compare to your investment objectives to decide if either is right for you.Though the two fund types share many traits, there are differences.

Mutual funds and exchange-traded funds (ETFs) are two investment vehicles used by investors to pursue diversification.

Etf vs index fund