When it comes to investing, people generally think of stocks and bonds, buy low and sell high, risks vs. reward, diversification and long-term results.
Amongst the basic concepts of investing, one of the most important pieces of advice for investors is to have a diversified portfolio. Many have heard the phrase “Don’t put all your eggs in one basket”, which correlates to the idea of not putting all your money in one stock, bond or asset class, as the downside consequences can be devastating. Besides stocks and bonds, there are other investment products that make investing easy, and help you spread your money amongst different asset classes, rather than picking and choosing individual stocks and bonds.
Two of the most common options are mutual funds and Exchange Traded Funds (ETFs). These types of funds have their differences, but both provide a level of diversification as they are professionally managed collections or “pools” of individual stocks and/or bonds.
Why should I invest in ETFs or mutual funds?
- They offer a wide variety of investment options that allow you to invest in the funds that best fit your investment needs (risk tolerance, asset class, time horizon).
- These funds are overseen or actively managed by portfolio managers (index funds and many ETFs are passively managed but have a portfolio manager that makes sure the fund stays in line with their target indices).
- They provide diversification, as your money is invested amongst a large variety of securities within one mutual fund or ETF.
Comparing ETFs and Mutual Funds
Mutual Funds | Exchange Traded Funds |
Investment Minimums – Most mutual funds that you are going to buy will have investment minimums that can vary based on the share class. | Investment Minimums – There are no investment minimums when buying an ETF. ETFs are bought share by share. Generally speaking, you can’t buy a fraction of an ETF. However, there are certain brokers that allow you to do so. |
Share Price – Mutual funds are priced once at the end of each trading day (after market close). | Share Price – ETFs are priced and traded like stocks, as they are actively traded throughout the day, giving you more control over the price at which you can buy or sell the security. |
Fund Management – Actively and passively managed funds are available. | Fund Management – Actively and passively managed funds are available. |
Automatic Investment/Dollar Cost Averaging – Allows investors to routinely invest a specific dollar amount into a fund. |
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When it comes to choosing your investments, you should consider your personal financial goals, time horizon, financial situation, and risk tolerance to create and implement an effective strategy.
If you need assistance with developing a financial plan/investment strategy, please contact one of Tycor’s financial advisors at 610-251-0670.
We are happy to help!