InvestingIntermediate5 min read
ETFs vs. mutual funds
They hold the same stuff. So what's actually different?
ETFs and mutual funds are both baskets of underlying securities. They're more similar than the marketing suggests. But a few real differences — in how they trade, how they're taxed, and how much they cost — can matter for specific investors.
The core differences
- ETFs trade like stocks on an exchange throughout the day. Mutual funds trade once a day at a single closing price.
- ETFs are typically more tax-efficient in taxable accounts due to their 'in-kind' creation/redemption mechanism, which generates fewer taxable distributions.
- Mutual funds sometimes have minimum investment requirements ($1,000 or $3,000 at Vanguard, for example); ETFs have effectively no minimum beyond the share price.
- Mutual funds can sometimes be cheaper when held at their home brokerage (Vanguard mutual funds at Vanguard, Fidelity mutual funds at Fidelity).
Which to pick
In taxable accounts, prefer ETFs for their tax efficiency. In retirement accounts, the difference nearly vanishes — pick whichever is cheaper and more available. For automatic dollar-cost averaging with fractional amounts, mutual funds still have a slight edge at many brokerages.
Put this into practice
Worth tracks your accounts, budgets, and goals — so the concepts in this article aren't just theory.
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