Investor personality ETFs Mutual funds Why?
Plans to trade actively—at least six times a year ETFs have the edge over mutual funds, based on their advanced trading features such as intraday trading and the ability to use stop and limit orders. Please be aware of commissions charged on ETF trades.
Wants to invest in a very specific part of the market ETFs cover more niche areas of the market than index mutual funds. But be warned—niche ETFs may expose you to higher risk.
Wants an investment that offers tax benefits ETFs may have the edge over index mutual funds. Because of the way they’re built, you’ll likely pay less in capital gains taxes. Actively managed funds tend to be the least tax-efficient. There are some mutual funds that have tax efficiency as their investment objective.
Cares more about cost—and the lower, the better ETFs often have lower expense ratios, although index mutual fund expenses overall have come down. Be sure to factor in commissions, though some ETFs (and many mutual funds) trade commission-free.
Prefers to make small, regular investments ETF trade commissions may make them more expensive than a no-load, no- transaction-fee mutual fund, though some ETFs are available commission-free. Schwab’s Automatic Investment Plan for mutual funds makes it easy to invest as little as $100 on a regular schedule that you choose.
Prefers to make small, regular investments Actively managed mutual funds give investors the opportunity to beat the market, as active managers seek to beat their benchmarks. However, actively managed mutual funds can come with additional risk.
Wants the broadest possible choice of funds Mutual funds offer more choice—there are about six times more mutual funds than ETFs on the market. Most mutual funds are actively managed.