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Ask The Advisor - Comparing ETFs and Mutual Funds

Ask The Advisor - Comparing ETFs and Mutual Funds

March 27, 2024

Comparing ETFs and Mutual Funds

Exchange-traded funds (ETFs) and mutual funds are both popular investment vehicles that offer diversification and potential for capital preservation, capital appreciation, or a mix of both. The two vehicles do virtually the same thing, which is give you market access to either one asset class or a diversified set of asset classes under professional management, though they have some key differences:

 

The key disadvantage of mutual funds is their tax inefficiency because they pay out capital gains that investors are taxed on each year regardless of if they sell the mutual fund at a gain or not.

Since their inception in 1993, ETFs have grown to $6.5 trillion in assets according to the Investment Company Institute. In the process, ETFs have become one of the primary investment vehicles used by retail and institutional investors to get invested in broader sectors of the market (as opposed to single stock purchases), ETFs can be used to trade short term or build long-term investment portfolios, and they can offer both active and passive management strategies.

Choosing between an ETF and mutual fund depends on your investment goals and preferences; consult with a financial advisor to discuss your specific situation and needs before investing.

Important Information:

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