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Ep #30: What is the difference between ETFs (Exchange-Traded funds) and Mutual funds?

30, Podcast May 23, 2020

Similarities :

Both are professionally managed group of stocks or bonds. 

Carry less risk than buying 1 stock

Offer a variety of investment options

Can follow an index fund, e.g. the S&P 500. 

Differences :

One can buy an ETF for the price of 1 share. There is a minimum investment requirement for mutual funds, around $2-$3k. 

For ETFs, you can purchase them at the market prices. However, the mutual fund price is determined at the end of the day. 

No automatic investing or withdrawal option available for ETF. ETFs might be better tax-efficient because the capital gains tax is realized when you sell the ETF.

ETFs are more passively managed. For Mutual funds, they are rebalanced, managers buy and sell securities, generating higher capital gains. 

Example of top-performing ETFs and Mutual funds :


ETFsMutual FundsVOO. Follows the S&P 500 index. Expense Ratio : (.04%). Current share price: ~$305. VFINX. Also the S&P 500 index. Expense Ratio : (.14%). Minimum Requirement: $3k.FZROX. Fidelity total market index fund. No trading fee, no minimum requirement. 2. FDFAX. Fidelity select consumer stapler. Minimum requirement: $2k. (ER : .77%)VHT. Tracks health care index. No minimum requirement. 3. VGHCX. Vanguard Health Care index fund.Minimum investment: $3k. Expense ratio: .34%. 

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