Even though exchange-traded funds (ETFs) have become fairly popular, we’re still somewhat surprised by how often people misunderstand the differences between them and mutual funds. It’s natural to compare the two, as they are both pooled investments, but we think that understanding the difference in the way the two are structured and traded may help investors choose the investment type best suited to their investment goals.
As the table illustrates, ETFs offer a number of benefits that can make them extremely effective in helping investors reach specific long-term goals. Additionally, as with mutual funds, ETFs come in every style and asset class in the investment rainbow. They can be used to complement mutual funds in an existing asset allocation, to replace mutual funds—or for an entire portfolio.
1Investors will be affected by tax consequences triggered by capital gains.
2Holdings are displayed daily on the website.
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