Index Funds vs ETFs vs Mutual Funds - What's the Difference & Which One You Should Choose?
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In this video I discuss the differences between Index Funds vs ETFs vs Mutual Funds and give you my opinion on what's the best investment is for your portfolio.
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DIFFERENCES: I want to start with Mutual Funds and why I think they are a mistake to purchase in this day/age. Mutual funds have been around the longest and the biggest identifier of a mutual fund is that it is professionally managed – this is also referred to as ACTIVE management. Stocks that are chosen within a Mutual Fund are chosen by a professional stock manager.
The fund fees are often higher because well, you have to pay the mutual fund manager to do the work. Typically mutual funds charge 1-2% per YEAR on the amount that you have invested into the mutual fund, which is called their expense ratio.
Index Funds typically have low fees. Their management style is PASSIVE management. An Index Fund is like a Mutual Fund, but it has no portfolio manager, thus saving you on fees.
An Index Fund just is constructed to MATCH or TRACK the components of a financial market index, such as the S&P 500. By buying the S&P 500 Index Fund, such as VFIAX, for around $300 you get to own a small percentage of the entire index.
Index funds seek to match the risk and return of the market, on the theory that in the long-term, the market will outperform any single investment. And
SO whats an ETF then?
Well a ETF is still a basket of securities, but its main difference is that it trades on the market so you can buy and sell it throughout the day, an Index Fund however, only trades once per day.
If you buy an ETF, since it trades like a stock, you’ll still be paying some commissions on it with a typical online broker.
Since ETFs do trade on the market, you can buy and sell it as you please, which, if you want that flexibility, it’s there. However, I would just recommend buying and holding if you are purchasing an ETF that tracks the market.
The other difference is that with these online brokerages, you may be able to buy into ETFs using fractional shares – which means if you have $50 you can buy a portion of an ETF, instead where some Index Funds might have a minimum – VFIAX for example has an initial minimum of $3000.
So which one is right for you?
Overall, I don’t love Mutual Funds. So with the remaining options – I would say, go with an Index Fund if you can meet the minimums and want a very passive strategy where you don’t want to be involved in your own portfolio, with Index funds you can also automatically reinvest dividends which is super powerful. Buy an ETF if you want to have more control over your own portfolio, and if you want to buy fractionally into them.
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For me ETF all the way
Two weeks ago, I almost burst into tears at my desk when my financial advisor told me I'd need to work an extra 7 years to retire. My portfolio of 14 different funds, carefully chosen over a decade of following every "hot tip" had underperformed the simple S&P 500 by nearly 3% annually. The shame was crushing. I felt like such a failure watching colleagues with simpler strategies surpass me. This 3-fund Boglehead approach felt like a lifeline thrown to someone drowning in complexity. Has anyone else experienced that painful realization that all your sophisticated efforts were actually holding you back?
As a beginner, having an experienced mentor can help you stay accountable and understand the fundamentals. I’ve learned to focus more on diversification, risk, fees, and long-term goals rather than chasing whatever stock is trending.
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Honestly, if you told me three years ago I’d be typing this from my own house instead of stressing over rent every single month, I would’ve laughed. Growing up with nothing makes you think that kind of security is only for other people. I started with literally $2,000 I scraped together, made every stupid mistake in the book losing money on random hype coins, and almost gave up. Everything changed when I finally stopped trying to guess the charts on my own and connected with a proper trading pro. Having someone who actually knows risk management walk you through the market changes everything. It’s the only real shot regular people like us have to build actual generational wealth and change our family tree. Don't let fear keep you stuck.
Why is youtube trying to auto-translate subtitles from Vietnamese for the video? 😡
I've been invested in both Mutual and Index funds for almost a decade now, its been a huge success. I bag a decent amount of profits yearly across my portfolio
This was very helpful. Thank you.
He says mutual funds are more expensive than ETFs but the lower expense is precisely the reason why I chose FXAIX, a mutual fund (0.015% fee) over the more popular VOO, an ETF (0.03% fee).
So am i missing something?
Mutual fund passes capital gains tax onto you
Mutual funds really seem outdated now.
Saying mutual funds suck is lazy
building an emergency fund and clearing high-interest debt to maximizing tax-advantaged accounts like IRAs and HSAs before finally investing in taxable brokerage accounts.
Tracking costs in Kore Terminal shows ETFs often outperform. Costs matter, 0.2% makes a difference.
5:42- Warren Buffett > Dave Ramsey
At the end of the period of several years, how hard is it to get your funds from these investments?
Great video.Namaste.
This was a really clear breakdown of index funds, ETFs, and mutual funds. I like how simple your made it to understand the differences. I've also seen similar ideas mentioned by Humphrey Yung and even Sal Cocurullo from RevenueLand, and it's helpful to hear it explained in different ways.
So weird that index funds are portrayed different than mutual funds or etfs when index funds can be purchased as an etf or an mf
Why he didn’t leave it at active management vs index escapes me and then the purchase can be made in an etf or an mf
What am I missing here
Good info. I've been leaning ETFs, don't plan on much trading for next 20 years
@humphrey =>=> Correction @ 6:26 Mutual orders only Trade after 4 p.m. ETFs and Index Funds can be Traded during all Market Hours.
I’m new to this, but I believe I’m in a mutual fund that tracks the S&P 500 but it’s passive not an actively managed. Is that possible?
Do you have a video talks about Segregated funds?
there's some good info in here, but there's also a bunch of bogus BS
Garbage video