Should You Invest In Stocks Or Mutual Funds?

Keep in mind that mutual funds aren't totally hands-off: You still have to stay on top of your portfolio — you may want to rebalance periodically, check fees, and ensure that you're still invested at the appropriate level of risk. Unlike most mutual funds, ETFs typically don't have a minimum requirement.

Even if you buy the fund late in the year, you could still be paying a tax bill for events that happened before you made the investment, thanks to what are known as embedded gains. And as with any investment, a company stock, mutual fund, an ETF, Index or otherwise, thoroughly research any exchange-traded fund or any financial asset before making any trades.

A 2.5% daily change in the index will for example reduce value of a -2x bear fund by about 0.18% per day, which means that about a third of the fund may be wasted in trading losses within a year (1-(1-0.18%)252=36.5%). That's because many mutual funds are available with no transaction fees and no sales commissions.

Mutual fund transactions, on the other hand, are completed after the markets close. Just 17% of Americans listed stocks as the best way to invest money they won't need for a while, compared with 30% who cited real estate and 23% who preferred cash investments, according to a Bankrate study.

For narrow ETF categories, or even country-specific products that have relatively small amounts of assets and are thinly traded, ETF liquidity could dry up in severe market conditions, so you may wish to steer clear of ETFs that track thinly traded markets or have very few underlying securities or small market caps in the respective index.

The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Shares of most open-ended funds are bought and sold at brokerage fee their Net Assessed Value (NAV).

Closed-ended funds may trade above or below their NAV, based on supply and demand. FootnoteTrading limits, fund expenses, and minimum investments may apply. Not only do ETFs provide real-time pricing , they also let you use more sophisticated order types that give you the most control over your price.

Most mutual funds are priced at the end of the trading day. Mutual funds and exchange-traded funds have similarities — and many differences. Mutual fund prices are based on "net asset value," which is determined at the end of each market trading day by calculating the number of shares in the fund against the worth of its assets.

Both mutual funds and ETFs can vary in terms of their legal structure. Diversification is important in investing, and products like mutual funds and Exchange Traded Funds (ETFs) are popular, simple ways to incorporate diversification into a portfolio. A collection of resources, Q&A Interviews with industry pros, and ETF categories to help investors research, gain industry insights and evaluate ETFs.

They're priced based on what investors think the market value is and you can buy and sell shares throughout the day. For a variety of reasons outlined below, we think ETFs are the right investment choice, much of the time, for many investors. Generally, compared to ETFs, the transaction costs are zero when mutual fund shares are bought or sold.