| Smart investing involves understanding the | | | | regular stock purchases. However, there are |
| investment terminology. Exchange-Traded Funds | | | | mutual funds available with no transaction fees. |
| (ETFs) and Mutual Funds are used in investment | | | | ETFs do receive a fee for the cost of a normal |
| portfolios to add more diversity to the portfolio. | | | | trade made at a brokerage. Fees are paid when |
| By buying one single investment, both ETFs and | | | | one buys and sells shares. |
| mutual funds permit a wide range of investment | | | | Because ETFs produce and cash-in shares that |
| options such as debt as an alternative to equity, | | | | are not considered sales, there are no taxable |
| foreign currency, country, and industry. Although | | | | situations that take place. When a compulsory sale |
| they are both used to group securities together, | | | | of stock takes place, mutual funds document and |
| there are differences between Exchange-Traded | | | | allocate more capital gains than ETFs. As well, |
| Funds (ETFs) and Mutual Funds. | | | | ETFs are able to reduce or avoid capital gains |
| ETFs trade throughout the trading day, while | | | | allocation altogether. ETFs do not have early |
| mutual funds are traded at the end of the day | | | | withdrawal fees, minimums to invest, or minimum |
| and are typically cashed in or procured at the Net | | | | holding periods. Mutual funds will normally have |
| Asset Value which is set on the trading day's | | | | various categories of shares such as A, B, or C, |
| closing prices. Unlike conventional mutual funds, | | | | which will likely have to be held for a set period of |
| ETFs do not have sales loads or investment | | | | time in order to prevent added fees when selling. |
| minimums. As well, ETFs have lower operating | | | | Mutual funds are typically required to maintain |
| expenses than mutual funds; therefore, there is | | | | cash on hand in order to instantly conduct |
| an increased rate of return. | | | | exchanges. |
| Exchange traded funds perform just as normal | | | | Unlike ETFs, Mutual funds normally cannot be sold |
| stocks do regarding sales and purchases. When | | | | short or purchased on margin by an investor. As |
| investors want to place an order to buy an | | | | well, all ETFs can be acquired from nearly any |
| exchange traded fund, they can place an order | | | | broker while mutual funds will have detailed |
| for the shares on the market and they will | | | | arrangements with various brokerage firms. ETFs |
| receive the order in the same way as any other | | | | typically have lower managerial and operational |
| stock purchased on the stock exchange. One will | | | | expense deductions compared to mutual funds. |
| have brokerage fees to pay for the purchase or | | | | Whether one chooses either an Exchange-Traded |
| sale of exchange traded funds. Both mutual funds | | | | Fund or Mutual Fund, it will depend on his or her |
| and ETFs have expense ratios. In most cases, | | | | own personal preference. The key to making a |
| exchange traded funds have lower expense ratios | | | | sound choice is to understand each type and |
| than mutual funds. Mutual funds have brokerage | | | | determine which one will benefit your investment |
| commissions based on the particular brokerage | | | | portfolio and your own personal financial needs. |
| firm. Normally, these fees will be much higher than | | | | |