Mutual Funds vs ETFs--Which is Right for You

When it comes to making your stock and portfolio investment decisions, finding the right match can be a lengthy process. It can also be a matter of trial and error, and both Exchange Traded Funds and Mutual Funds offer a variety of benefits. Knowing the key differences between these financial investments is the first step in your decision-making process.

How Exchange Traded Funds Work

Exchange trade funds are made with stocks and are categorized into three types of funds:

• Broad-Based Funds that can be invested into different industries
• Sector Funds that can invested into a particular sector (e.g. biotechnology)
• International Funds that are purchased for a specific country

The shareholders of the ETF are the ones who receive the dividends from the trade, and ETFs are a great way to fill up the a retirement account. Many investors pick the ETF because they can help consolidate retirement funds. ETFs are commonly called open-end investments, and are traded throughout the day on the stock exchange. These can ofte have high broker fees and costs associated with them, so it's important to review all the risk and benefits involved with the investment.

How Mutual Funds Work

When you invest in a mutual fund, you are investing shareholder money in a range of different companies and countries. Mutual funds offer a lower risk compared to Exchange Traded Funds since they are so diversified. Mutual funds are a form of collective investment, and are managed by the fund manager. Mutual funds are a great fit if you are looking for a low-risk investment for long-term decisions.

Working with a financial investor or portfolio counselor can help you track down exactly what type of investment is suitable for you.