Buying exchange-traded funds (ETFs) and mutual funds can make investors good money without absorbing the volatility of day trading.
Over the past two years, the trading volume in the stock and options markets has dramatically increased due to the popularity of applications like Robinhood, E*TRADE, and others. Small trades contribute much of the growth. However, those small traders are often young, inexperience, and middle-class who can’t quantify the risk of day trading.
If you don’t want to bet your retirement money on individual stocks and options, ETF and mutual funds are two great ways to build a well-diversified portfolio. ETFs and mutual funds don’t get the flashy stories and headlines from business networks and blogs, but they can make you money, at times more money than the high-flying speculative stocks like Tesla, Beyond Meat, and Roku.
ETFs & Mutual Funds Similarities
ETFs and mutual funds are both professionally managed baskets of individual stocks or bonds. They provide investors with a broad and diversified exposure to an asset or region.
For example, if you want a great exposure to the technology sector, you can buy the BNY Mellon Technology Growth Fund or the Technology Select Sector SPDR (XLK) exchange-traded fund. ETFs and mutual funds save you from the headache of vetting and buying individual technology company stock.
Moreover, if you want to invest in great Chinese companies like Bytedance (TikTok) or Alibaba, but you don’t want to take on that country-specific risk, you can buy the iShares Edge MSCI Min Vol Emerging Markets ETF or the Fidelity® Pacific Basin Fund.
ETFs & Mutual Funds Difference
ETFs are traded on major stock exchanges like the New York Stock Exchange and Nasdaq and the American Stock Exchange (AMEX). Mutual funds don’t trade like a stock; you buy them directly from investment companies such as Vanguard, Fidelity Investments, and T-Rowe Price.
Because mutual funds don’t trade on stock exchanges, the net asset value or NAV could change by the time your order is filled. Let’s say that you want to redeem (sell) your mutual fund shares. You have to reach out to the mutual fund company to do so.
The fund’s net asset value or NAV is calculated at the end of each trading day. As a result, the NAV or fund share price could be quite different from the time you submitted your request to the time it was filled.
Bottom Line
Investing in ETFs and mutual funds does not come with stories of tremendous fortunes gained, but they can provide you with a broad and diversified portfolio. If you think that you can be amongst the 0.05% of day traders who can make a fortune trading individual stocks and call options, try it first with a small percent of your investable funds.
