What are the key differences between ETFs and mutual funds?

What are the key differences between ETFs and mutual funds?

ETFs, or Exchange-Traded Funds, are traded on stock exchanges like individual stocks, while mutual funds are bought directly from the fund company. This means ETFs can be bought and sold throughout the trading day at market prices, whereas mutual funds are priced at the end of the trading day.

What about fees? Are they different?

Yes, generally, ETFs tend to have lower expense ratios compared to mutual funds. However, mutual funds may have additional fees like load fees, while ETFs might incur brokerage commissions when buying or selling.

How about tax implications?

ETFs are usually more tax-efficient than mutual funds due to their structure, which allows for in-kind redemptions. This can help minimize capital gains distributions.

Which one is better for long-term investing?

It depends on your investment strategy. ETFs offer flexibility and lower costs, while mutual funds may provide professional management. Consider your goals and preferences.

Can you give me examples of each?

Sure! An example of an ETF is the SPDR S&P 500 ETF (SPY), and a popular mutual fund is the Vanguard 500 Index Fund.