Wealth Planning - Investments: Mutual Funds and ETF’s Investments: Mutual Funds and ETF’s
We’ve all heard the phrase, “Don’t put all your eggs in one basket.” In the world of investments, mutual funds and Exchange Traded Funds (ETF’s) are often a great choice for investors to easily spread their investment “eggs” among hundreds of different investments.
By ourselves, most of us have limited resources to create a truly diversified portfolio of individual stocks and bonds. Even if we did have the resources, how would we know what to buy? Mutual funds and ETF’s allow us to pool our money with other investors, turn over the investment selection to a professional money manager, who then uses that larger pool to invest in hundreds, maybe even thousands, of different stocks, bonds or other investments.
Mutual funds and ETF’s are categorized by the types of investments they purchase. Some may only purchase stocks of large, U.S companies, while others may purchase stocks of companies based anywhere in the world. Some may purchase only U.S. Government bonds, while others may purchase non-U.S., corporate or even municipal bonds. Still others will purchase both stocks and bonds.
What’s the difference between a mutual fund and an ETF?
One of the biggest differences between mutual funds and ETF’s is in how they are managed. Many mutual funds employ a strategy called Active Management which attempts to achieve superior returns through diligent analysis, which they believe will lead to better investment selection. Most ETF’s on the other hand, employ Passive Management, which simply attempts to track the returns of it’s appropriate index. This emphasis on analysis and security selection often makes actively managed mutual funds more expensive to own than a passively managed ETF.
More information can be found on the Securities and Exchange Commission’s Investor Education website at www.investor.gov.
To learn more about mutual funds and ETF’s call (805) 988-2151 ext. 5710 or complete the form on this page to schedule an appointment with one of our advisors.
The information presented here is for educational purposes only and should not be considered financial, tax or investment advice. Please consult a qualified professional.
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