The Differences Between ETFs and Mutual Funds

When it comes to diversifying an investor’s portfolio, ETFS are a popular option to consider. An ETF is an abbreviation for an exchange traded fund and an ETFS is simply the stock on which the fund is traded. Both mutual funds and ETFS hold individual portfolios of stocks or bonds and at times something even more exotic, like precious metals or even commodities. Both can track various indices as well, but ETFs are generally more liquid and much less expensive because they trade on major exchanges like the New York Stock Exchange and the NASDAQ.

Investors who are just beginning to explore their options may be wondering what the key differences are between mutual funds and ETFS. There are several major differences that can help you determine which of these investment vehicles might be the right fit for your portfolio. First and foremost, mutual funds can take up to 15 days to reach a full-size position after being created. This can be very inconvenient and may cause you to temporarily foreclose on your stocks or other assets in order to meet the short-term requirements of an individual fund. In addition, investors who choose to use exchange-traded funds do not have the same convenience as a mutual fund. Once an ETF has been established, there is no need to wait for an official start date and once you sell your holdings, there is no fresh capital required to be invested into the fund.

Another key difference is that ETFs offer flexibility when it comes to tracking the various indices and commodities. By using ETFS instead of individual stocks or bonds, you can trade as if you had complete control over the trades. This means that you will likely receive more volatility and better returns than you would by using a traditional buy and hold strategy. Furthermore, ETFs do not have to be purchased and held as traditional investments. There are instances where ETFs can be funded in a manner that does not require the sale of stocks or bonds.