What'southward the difference between a common fund and an ETF?

ETFs and mutual funds are certainly like shooting fish in a barrel to misfile. Both types of funds agglomeration many unlike investments into 1, giving y'all exposure to hundreds of stocks (or bonds or other avails) with a single trade. That helps go on costs relatively low for both considering you can go broad diversification without having to buy each investment individually. Plus, both ETFs and mutual funds are run by professional person fund managers, so you can exit the investment analysis and in-depth research to the experts.

But in that location are some key differences, like…

Pricing

As mentioned in a higher place, ETFs trade on an commutation and can exist bought and sold throughout the day equally share prices fluctuate, simply like a stock. Shares of mutual funds, on the other hand, are priced just in one case at the finish of each trading day based on their net asset value (NAV), i.due east. the weighted value of all the investments inside the fund at their closing prices. You lot can place an order for shares at any time of day, just the buy won't be executed until after the endmost bell.

Minimum Investments

Common funds often come with minimum initial investment requirements of $1,000 or more. (Once you're in, you can usually purchase more in smaller increments.) With ETFs, yous tin invest nevertheless much y'all want, even if it'south just enough to go you a single share. Through Acorns, you can even invest in fractional shares. So you lot can commencement investing through Acorns with as fiddling as $5.

Costs

ETFs tend to charge lower expense ratios than mutual funds. (Hint: An expense ratio is the annual fee you have to pay when you invest in a fund, expressed every bit a per centum of your investment. So if you invest $ane,000 in a fund, and its expense ratio is 1 percent, you pay $10 a year.) That'due south considering well-nigh of them are designed to rail an index, such as Standard & Poor'southward 500-stock alphabetize, pregnant they should need less upkeep than actively managed mutual funds. Indeed, the average expense ratio for an actively managed fund in 2019 was 0.74 percentage. For an index equity ETF, it was 0.18 percent, co-ordinate to the Investment Company Plant.

Note: You may be able to salve some on mutual funds past buying straight from the fund company and skipping whatsoever trading fees a broker might charge.

What types of ETFs are in that location?

All kinds. You lot can pretty much detect an ETF for whatever type of investment you're looking for—be it stocks, bonds, commodities, currencies or specific sectors (like retail or engineering). You can fifty-fifty find ETFs to serve certain investing strategies. For instance, dividend ETFs focus on generating income through dividends for investors, and changed ETFs aim to brand money when their underlying investments fall. And despite ETFs existence originally designed to track an index, there are at present hundreds that are actively managed.

(Acorns portfolios include a range of ETFs, with exposure to thousands of stocks and bonds, to adjust every type of investor. The most conservative portfolio includes bond ETFs, such as iShares 1-iii Yr Treasury Bond ETF (SHY). And on the reverse of the hazard spectrum, more aggressive ETF investments include the Vanguard Existent Estate ETF (VNQ) and Vanguard FTSE Emerging Markets ETF (VWO) funds.)

How do I invest in an ETF?

You can buy shares of ETFs through any investment account (including your Acorns account, if you're a customer) just as you lot would individual stocks. You can specify either the number of shares you lot want to purchase or the amount of coin you'd like to invest at a given fourth dimension or share price.

What else should I consider when investing in ETFs?

Risks. While the basket-of-investments approach of ETFs helps reduce chance with its built-in diversification, it doesn't get rid of risk entirely. And just how risky an ETF is depends on its underlying assets. For example, only as stocks are typically riskier than bonds, stock ETFs are riskier than bail ETFs. And going with an ETF focused on a specific sector comes with more adventure than investing in a wide market index ETF.

Also note that index ETFs (and index mutual funds, for that thing) are meant to lucifer their benchmarks, not beat them. That means that in proficient times, such investments should generally practice well. When times plow bad though, equally they did in spring of 2020, following an index downwards won't feel quite so proficient. Just remember that every market downturn has concluded in an upturn. The stock market place'south grown significantly over the long term, and then it pays to hang on during crude spots and stick with your strategy.

And whether you lot prefer index ETFs or a more niche diverseness, these investment vehicles can be a smart, depression-cost way to grow your money. You just need to be sure you're using them to build a well-diversified portfolio, custom fit to achieve your own long-term financial goals.

Investing involves take a chance, including loss of principal. By functioning does not guarantee or indicate future results. This data is being provided for informational purposes only, and is not intended to provide, and should not be relied on, for accounting, legal or tax communication. You should consult your taxation or legal adviser regarding such matters.