Mutual Funds vs. ETFs

If you’re looking to start investing, mutual funds and exchange-traded funds (ETFs) are popular choices for beginners because they offer diversification, professional management and simple setup. With mutual funds and ETFs, you can buy a single share or fund that owns pieces of hundreds of companies at once. This means you don’t have to look into individual companies, relieving stress of picking the wrong one.

But which is the better choice for you? Here are a few key differences:

Minimum cost

Mutual funds often have a flat, minimum dollar amount – sometimes ranging from $1,000 to $3,000 or more.

ETFs are priced as whole shares, so you only need enough to cover the cost of a single share – this may range from $20 to over $500.

How they are traded

Mutual funds are priced and traded once per day, after the market closes.

ETFs are traded all day at fluctuating prices, like stocks.

Tax implications

EFTs generally trigger fewer capital gains distributions than mutual funds, making them more tax-efficient in brokerage accounts.

In retirement accounts like an IRA or 401(k) where taxes are deferred until you withdraw the money, the difference is largely irrelevant.

Investment goals

Mutual funds are well-suited for long-term investors and those making contributions to a retirement account.

ETFs are ideal for active traders, investor who prioritize tax efficiency or those looking for lower-cost investment opportunities.

Whether you’re just beginning to invest or you’ve been at it for a long time, City’s Wealth Management advisors can help. With account relationships starting at just $25,000, we will work with you to develop a personalized plan based on your individual needs.