A. ETFs are just like mutual funds, with pools of money invested in some investment vehicles. The main difference is mostly in the “exchange-traded” part, because ETFs trade at anytime, where traditional mutual funds only trade once per day.
Comparing ETFs and mutual funds are just like comparing two different types of cars - one is built for speed and one is built for safety.
When compared with mutual funds, ETFs do have a few advantages:
- Ease of trading (you know the price you are buying or selling right away, instead of waiting till end of the day for mutual funds)
- Lower expense ratios.
- No front or back-end sales charges and redemption fees (although brokerage commissions do occur)
- ETFs can be structured with a very granular focus on a niche or an industry.
However, the key ETF's advantage - ease of trading could make ETFs a bad investment choice for some investors because just like Vanguard found Jack Bogle said - when you give investors an easy to trade vehicle, they will trade. And we all know active trading has been proven usually lead to inferior investment results.