ETF vs Mutual Fund

Both pool investors’ money into a basket of holdings. The main differences: an ETF trades on an exchange all day like a stock, while a mutual fund is bought and sold once a day at its closing value; ETFs usually cost less and are more tax-efficient in taxable accounts.

Trading and minimums

ETFs trade whenever the market is open, at a price that can move during the day, and you can buy as little as one share (or a fraction, at many brokers). Mutual funds are priced once, after the close, and some require a minimum first investment.

Costs and taxes

Index ETFs and index mutual funds can be equally cheap; actively managed mutual funds tend to cost more. Some mutual funds add sales charges (loads).

In a taxable account, ETFs usually distribute fewer capital gains, because of how shares are created and redeemed. In a retirement account this difference doesn’t matter.

Which to choose

For a long-term investor the holdings and the fee matter far more than the wrapper. Mutual funds suit automatic fixed-dollar investing at a fund company; ETFs suit investors who want to trade at any time or keep taxes down.

Put it to use

Low-cost ETFs →Compare ETFs side by side →

General information, not investment advice.