ETFs vs. Mutual Funds: Which Is Right for You?

Depending on your investment strategy and your goals, you may want to include exchange-traded funds (ETFs), mutual funds or both in your portfolio.

Here’s what you need to know about these two types of investments. And remember, if you have questions about investing strategy, a Farm Bureau financial advisor would be happy to help. 

What Is an Exchange-Traded Fund?

An exchange-traded fund is a collection of securities that trades like a stock. The price of an ETF can go up and down throughout the day. There are lots of different types of ETFs, so you can choose based on your goals. Some are passive and track an index like the S&P 500. Others are actively managed. Some focus on specific industries (like energy), commodities (like gold), cryptocurrencies (like Bitcoin) or other areas. 

EFTS are typically good for spreading risk because they have a level of built-in diversification that you don’t get when purchasing individual stocks. 

What Is a Mutual Fund?

A mutual fund is a type of investment where shareholders pool money together to buy a portfolio of stocks, bonds or other securities. They are a popular choice for retirement savings because they can provide diversification and professional management.

You can choose mutuals funds that are invested in stocks, bonds, indexes, money markets, international businesses, sectors and more.

What’s the Difference Between ETFs and Mutual Funds?

If you’re deciding whether to invest in mutual funds or ETFs, you’ll need to compare the two. In both types of investments, you can own a range of securities.

• You may be able to invest in an ETF with a lower dollar amount to start, so an ETF may be more attractive if you want to invest and you don’t have the $500 to $5,000 you may need to invest in a mutual fund.
• ETFs trade throughout the day, while mutual funds are priced at the end of the trading day. This might make a difference for you if you want to actively trade.
• Passively managed ETFs typically have lower costs than actively managed mutual funds, but you can find passively managed mutual funds with lower costs, too.
• ETFs may be more tax-efficient.

Should You Invest in Mutual Funds or ETFs?

When you’re trying to decide which is better, an ETF or a mutual fund, you’ll need to consider your goals, investment style and risk tolerance.

You may want a mutual fund if:

• You want to invest a certain dollar amount regularly.
• You want active management that could outperform the market.
• You’re comfortable with higher fees because of the potential higher returns.

You might want an ETF if:

• You want lower expenses.
• You’re not trying to outperform the market.
• You want to actively trade shares.
• You’re looking for more tax-efficient investments.

Keep in mind that these differences are generalities, and you’ll want to look at specific funds when you make your decisions. 

Investing doesn’t have to be an either/or decision. You may find that there’s a place in your portfolio for both types of investments.

ETFs vs. Mutual Funds: How a Pro Can Help

If you’re figuring out the best investment mix for your finances, reach out to Farm Bureau. Our advisors can help you create a plan for your portfolio based on your goals, budget and timeline.