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Yahoo
26-06-2025
- Business
- Yahoo
ETFs vs. index funds: Key differences and similarities
Exchange-traded funds (ETFs) and index funds both offer a straightforward way to diversify your investment portfolio. Both fund types can have low fees, though index funds often charge less. You may own index mutual funds through your workplace retirement plan, while ETFs are more often purchased separately with a brokerage account. Index funds and exchange-traded funds (ETFs) are both great wealth-building tools that work well in many different investment scenarios. But it's important to note that index funds are often ETFs and ETFs are almost always index funds. Both index funds and ETFs are often low-cost and passively managed, meaning they can be a 'set-it-and-forget-it' solution. Plus, both investment vehicles can offer built-in diversification; these qualities and more make them ideal for the average investor. Here we'll compare these two types of investments to help you decide if either (or both) are right for you. Get started: Match with an advisor who can help you achieve your financial goals ETFs and index funds present a few differences that investors need to be aware of. If you invest in a 401(k) or 403(b) through your employer, there is a good chance you will have index mutual funds as an investment option, but not ETFs. If you want to buy ETFs, your best bet is usually to open an IRA, Roth IRA, or a taxable brokerage account. Depending on where you open these accounts, you will likely have access to a much broader range of funds, including a wide variety of mutual funds and ETFs. Ultimately, online brokers offer you the greatest number of options for buying index funds. The major brokers offer all of the common types of index funds. Investment minimums vary depending on the type of index fund. For example, mutual funds have investment minimums that can be a barrier for some investors. Vanguard's VTSAX had a minimum investment of $10,000 in the past. The minimum has since been reduced to $3,000, which is much better, but can still sideline some who don't readily have that much cash on hand. When you have an account with an online broker, you can often buy as little as one share of an ETF. Better still, several online brokers now offer trading in fractional shares. These fractional shares allow you to buy as little as 1/100,000th of one share in some cases, meaning you can invest exactly as much as you want. Trading fees work differently for mutual funds and ETFs. These days, trading commissions for stocks and ETFs are almost non-existent when you deal with major brokers. Index mutual funds generally don't have trading commissions when buying directly through the company that issues them. However, they may have load fees, which are a form of sales commission. ETFs have no load fees, either on the front end or the back end. The lesson here is to see the whole picture in terms of the fees, because even if a mutual fund has a lower expense ratio than an equivalent ETF, that can be offset by trading fees. If you buy and sell frequently, ETFs are the clear winner when it comes to taxes. When shares of an ETF are sold, only the seller pays capital gains taxes. That's different from index mutual funds because a fund manager is involved. If the fund manager then sells the underlying assets for a gain, those gains are spread among every investor who owns shares in the fund. Despite their differences, ETFs and index funds are quite similar, and they can serve a lot of the same roles for the investor. One of the biggest benefits of both index funds and ETFs is how easy they make it to diversify your portfolio. Total stock market funds, for example, track the performance of every publicly traded company in the United States, meaning at the moment, they track nearly 4,000 U.S. companies. Vanguard funds VTSAX and VTI track this same index, but the former is a mutual fund and the latter is an ETF — but they're both still index funds. The fees on both index funds and ETFs are low, especially when compared to actively managed funds. Many ETFs track an index, and this investment style keeps fees low. Since the fund changes based only on changes to the index — a passive approach — there are few labor costs associated with index funds. In 2023, the average expense ratio for index equity mutual funds was 0.05 percent, according to the Investment Company Institute's latest report. For equity ETFs, it was 0.15 percent. On the other hand, the average fee in 2023 for actively managed mutual funds and ETFs was 0.65 percent and 0.43 percent, respectively. Index funds and most ETFs simply try to replicate an index of stocks or other assets. They don't make active trading decisions and try to beat the market. Instead, they try to mimic the index and match its returns over time. And investors can use index funds and ETFs as a passive investment strategy. For instance, you may have an employer-sponsored retirement plan that allows you to invest using payroll deductions. If you invest a certain percent of your salary every pay period in index funds, your portfolio will need little to no ongoing maintenance. The same is true if you invest in ETFs or index funds in a brokerage account. When you buy S&P 500 index funds, for example, most brokers offer the option to invest automatically. Another benefit of both index funds and ETFs is strong long-term performance. An active fund manager or stock picker might make a few winning trades here and there; few, though, can do so for a sustained period and beat the market. Over the long term, most active fund managers fail to beat or even meet their index funds and ETFs provide more consistent performance that wins in the long run. The S&P 500, for example, has historically returned about 10 percent per year, on average. This makes broadly diversified index funds and ETFs solid long-term investments. Determining whether an index fund or ETF is better is difficult because the answer depends on the specific funds being discussed and your goals as an investor. Many index funds are available in ETF form, which provides trading throughout the day and rock-bottom fees. If you're buying an index mutual fund, you'll likely run into investment minimums of a few thousand dollars, plus you'll only be able to buy and sell at the end of each trading day. But it's important to remember that mutual funds and ETFs aren't investments in and of themselves, they're just vehicles for investing in securities like stocks and bonds. If you're investing in a mutual fund and an ETF that both track the same index and therefore hold the same underlying securities, you're likely to end up with similar performance over longer periods of time as long as the fees for each fund are similar. Learn more: A guide to financial planning and how to get started Whether you invest in an ETF or an index fund, you are choosing to invest in your future. The differences between the two tend to be small; in fact, index funds and ETFs are often (but not always) the same thing. Thus, which one you choose is less important than the choice to start investing. In doing so, you take advantage of low fees and diversification, and an investment that will grow over time. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Finextra
22-05-2025
- Business
- Finextra
The Unique Needs of Both The Novice & High Net-Worth Investor
Kasey Gaines, Founder, Psalm Capital in his FinextraTV interview at the Communify Fincentric 2025 Experience gave his unique insights on two quite different investor types. Explaining both the heavy-lifting advisory needs of Hight Net-Worth investors and the importance of risk tolerance assessments for the more novice ones, his advice in both situations emphasises the importance of the financial advisor.
Mail & Guardian
15-05-2025
- Business
- Mail & Guardian
How to manage money as a couple when you earn differently
Stephanie Ferreira, Director and Financial Planning Specialist at Chartered Wealth Solutions. B y Stephanie Ferreira, Director and Financial Planning Specialist at Chartered Wealth Solutions In many relationships, one partner earns more than the other. One may have taken a career break, started a business, faced retrenchment or simply be in a lower-paying profession. While this is completely normal, it can lead to resentment, guilt or confusion about what feels fair – especially when couples haven't discussed how to manage the imbalance. With the right conversations, it is possible to balance income differences in a way that feels equal, empowering and practical for both partners. The emotional side of earning differently An income gap doesn't just affect the household budget – it can influence how each partner feels, behaves and communicates about money. One partner may feel guilty about spending money they didn't 'earn'. The higher earner may feel burdened by carrying most of the financial responsibility. The lower earner may feel 'less than' – even when contributing in other meaningful ways. These dynamics aren't unusual. But they do highlight the need for honest, structured conversations about money and long-term goals. What feels fair is deeply personal, and there's no one-size-fits-all solution. What matters is that both partners are heard, involved and part of the plan. What couples are doing in practice In my experience as a financial planner, couples manage income differences in various ways. The most common approach is to split joint expenses proportionally to income. If one partner earns more, they contribute more. Whatever's left, each person uses for their own spending or saving. Others prefer a straight 50/50 split, regardless of income. A few pool all their income into a shared account and pay both joint and individual expenses from there. This approach is less common and can be challenging to manage. It often requires careful budgeting and tracking, especially when it comes to things like debit orders, subscriptions or personal spending. On the opposite end, some couples don't know what the other earns – and avoid joint planning altogether. Finding an approach that works for both of you The most successful couples are those who have the conversation, agree on a structure that feels fair and review it regularly. Money is deeply personal, so what feels 'equal' to one couple may not feel that way to another. Start with shared goals Goals are a great way to align your thinking as a couple. Set short, medium and long-term goals together. Before you know it, you'll be talking about what matters most and how you want to prioritise your money. Maybe the focus over the next year is travel and experiences. Or perhaps it's paying off debt, buying a new car or saving for a home. Talk about when you'd like to retire or whether one of you wants to take time off to study or start something new. When both partners feel invested in the plan, money becomes something that brings you together – rather than something that causes stress or conflict. Make the conversations easier Money silence usually leads to money stress. Once your goals are clear, the conversations become easier. You're not just talking about numbers – you're talking about what matters to both of you. Carve out time to discuss any concerns, ensure your spending plan aligns with your goals, agree on how expenses will be split, who's responsible for what and how often you'll check in. A practical tip: Set up a joint card or account for monthly shared expenses like groceries or eating out. Each partner contributes a set amount. It keeps the admin simple – and avoids the ongoing 'whose turn is it?' discussions. Don't attach your worth to your income Earning less (or not at all) doesn't mean contributing less. Raising children, supporting a partner's career or managing the home are all valuable contributions. The way you divide financial responsibilities should reflect that. Even if one partner earns significantly more, managing money should still be a shared responsibility. Ensure both partners have financial security If one partner takes a career break – to raise children, start a new venture or study – consider allocating a portion of savings or investments in their name. Long-term financial security should belong to both partners, not just the higher earner. The same applies if one spouse is earning significantly less. Think long-term and consider how the current arrangement fits into your broader financial picture. When balancing different incomes in a relationship, the most important consideration is to engage in open and honest conversations. You don't need to earn the same to feel like equal partners. When both partners are involved, informed and secure, money becomes something you manage together – not something that comes between you. For more information, visit
