ETFs vs. Mutual Funds: Which To Choose | Vanguard (2024)

For more information about Vanguard funds or ETFs, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

*Commission-free trading of Vanguard ETFs applies to trades placed both online and by phone. Commission-free trading of non-Vanguard ETFs excludes leveraged and inverse ETFs and applies only to trades placed online; most clients will pay a commission to buy or sell non-Vanguard ETFs by phone. It also excludes leveraged and inverse ETFs, which can't be purchased through Vanguard but can be sold with a commission. Commission-free trading of non-Vanguard ETFs also excludes 401(k) participants using the Self-Directed Brokerage Option; see your plan's current commission schedule. Vanguard Brokerage reserves the right to change the non-Vanguard ETFs included in these offers at any time. All ETFs are subject to management fees and expenses; refer to each ETF's prospectus for more information. Account service fees may also apply. All ETF sales are subject to a securities transaction fee. See the Vanguard Brokerage Services® commission and fee schedules for full details.

**Vanguard Target Retirement Funds and Vanguard STAR® Fund have a $1,000 minimum. Most other Vanguard funds have a $3,000 minimum. Some Vanguard funds have higher minimums to protect the funds from short-term trading activity. Fund-specific details are provided in each fund profile.

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for limits. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility.

ETFs vs. Mutual Funds: Which To Choose | Vanguard (2024)

FAQs

ETFs vs. Mutual Funds: Which To Choose | Vanguard? ›

An ETF could be more suitable for you.

What could be an advantage of ETFs over mutual funds? ›

ETFs have several advantages for investors considering this vehicle. The 4 most prominent advantages are trading flexibility, portfolio diversification and risk management, lower costs versus like mutual funds, and potential tax benefits.

Why might ETFs and mutual funds be a better choice than individual stocks? ›

ETFs offer advantages over stocks in two situations. First, when the return from stocks in the sector has a narrow dispersion around the mean, an ETF might be the best choice. Second, if you are unable to gain an advantage through knowledge of the company, an ETF is your best choice.

What are some arguments for why a mutual fund is better than an ETF? ›

Unlike ETFs, mutual funds can offer more specific strategies as well as blends of strategies. Mutual funds offer the same type of indexed investing options as ETFs but also an array of actively and passively managed options that can be fine-tuned to cater to an investor's needs.

How do you choose between ETF and mutual funds? ›

Key Takeaways. Many mutual funds are actively managed while most ETFs are passive investments that track the performance of a particular index. ETFs can be more tax-efficient than actively managed funds due to their lower turnover and fewer transactions that produce capital gains.

Is it better to invest in ETF or mutual funds? ›

The choice comes down to what you value most. If you prefer the flexibility of trading intraday and favor lower expense ratios in most instances, go with ETFs. If you worry about the impact of commissions and spreads, go with mutual funds.

What is the downside of ETFs? ›

For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.

Why are ETFs more risky than mutual funds? ›

The short answer is that it depends on the specific ETF or mutual fund in question. In general, ETFs can be more risky than mutual funds because they are traded on stock exchanges.

What is the single biggest ETF risk? ›

The single biggest risk in ETFs is market risk.

Should I only invest in ETFs? ›

Why Invest in ETFs Rather Than Mutual Funds? ETFs can be less expensive to own than mutual funds. Plus, they trade continuously throughout exchange hours, and such flexibility may matter to certain investors. ETFs also can result in lower taxes from capital gains, since they're a passive security that tracks an index.

Should I switch from mutual funds to ETFs? ›

If you're paying fees for a fund with a high expense ratio or paying too much in taxes each year because of undesired capital gains distributions, switching to ETFs is likely the right choice. If your current investment is in an indexed mutual fund, you can usually find an ETF that accomplishes the same thing.

What is the biggest difference between ETF and mutual fund? ›

How are ETFs and mutual funds different? How are they managed? While they can be actively or passively managed by fund managers, most ETFs are passive investments pegged to the performance of a particular index. Mutual funds come in both active and indexed varieties, but most are actively managed.

What is the difference between ETF and mutual fund for dummies? ›

Mutual funds are usually actively managed, although passively-managed index funds have become more popular. ETFs are usually passively managed and track a market index or sector sub-index. ETFs can be bought and sold just like stocks, while mutual funds can only be purchased at the end of each trading day.

What is the main advantage of mutual funds? ›

Low Cost — An important advantage of mutual funds is their low cost. Due to huge economies of scale, mutual funds schemes have a low expense ratio. Expense ratio represents the annual fund operating expenses of a scheme, expressed as a percentage of the fund's daily net assets.

Are mutual funds more risky than ETFs? ›

A mutual fund or ETF tracking the same index will deliver about the same returns, so you're not exposed to more risk one way or the other.

Why are ETFs so much cheaper than mutual funds? ›

The administrative costs of managing ETFs are commonly lower than those for mutual funds. ETFs keep their administrative and operational expenses down through market-based trading. Because ETFs are bought and sold on the open market, the sale of shares from one investor to another does not affect the fund.

What is the advantage of an ETF over a mutual fund quizlet? ›

ETFs guarantee a higher return than mutual funds. b. You have more control and flexibility because you can trade ETFs anytime while the market is open.

Which are advantages of ETFs over conventional mutual funds quizlet? ›

Which are advantages of ETFs over conventional mutual funds? ETFs have lower expense ratios than actively managed mutual funds. ETFs trade continuously on an exchange. ETFs offer a potential tax advantage.

What is the advantage of exchange traded funds ETFs over mutual funds quizlet? ›

Exchange-traded funds can be traded during the day, just as the stocks they represent. They are most tax effective, in that they do not have as many distributions. They have much lower transaction costs. They also do not require load charges, management fees, and minimum investment amounts.

What is ETF advantages and disadvantages? ›

Advantages and disadvantages of ETFs

Investing in ETFs helps to mitigate unsystematic risks due to its passive investment strategy. It also lowers one's overall investment risk. It greatly helps with portfolio diversification. With the limited role of fund managers, ETF investments are comparatively cost-effective.

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