INDEX FUNDS vs MUTUAL FUNDS vs ETF // IN this video I will give you an explanation of the differences between these 3 types of investment funds and how to choose the best option for YOU in 2021! Watch this video to find out the pros & cons of Index funds vs mutual funds, index funds vs ETFs, ETFs vs index funds, and ETFs vs mutual funds. You'll also get a beginner-friendly explanation on why a mutual fund, ETF and Index funds are so unique when you compare them to one another.

This video on index funds for beginners, ETFs for beginners, and mutual funds for beginners was created to help you understand these investment funds before you make the investing mistakes other beginner investors like myself made. This is the definitive resource to find out the differences/similarities and pros/cons of index funds vs mutual funds vs ETFs!

The main similarity is that all of these funds allow you, for the convenience of making a single purchase, that allows you to own a small percentage of all the stocks within the fund. The 2nd similarity they share is that they help you diversify your portfolio – they do this because you are buying a basket of stocks that they hold.

DIFFERENCES: I want to start with Mutual Funds and why I think they are like the boomers of the group. They may have been great in the past, but now they could be a mistake to purchase for most beginning investors in 2021. Mutual funds have been around the longest and the biggest difference you’ll see with a mutual fund is that it is professionally managed. In the investment world this is known as ACTIVE management. Stocks that are chosen within a Mutual Fund are chosen by a professional stock manager who is paid to buy and sell the stocks within the fund.

The fund fees are often much higher than the fees you will find with an index fund or an ETF because, you have to pay the mutual fund manager to do all of the stock picking on your behalf. Mutual funds will typically charge 1-2% per YEAR based on the amount that you have invested into the mutual fund, which is known as the mutual funds expense ratio.

Index Funds typically have low fees that can start out as low as .04%. Index funds management style is more of a PASSIVE management. An Index Fund is similar to a Mutual Fund, but it has no portfolio manager, which can create a great deal of savings for you in the long run as you do not have to pay the fund manager large annual fees.

An Index Fund was created to Mirror or track the financial market index. Examples of such index’s are the S&P 500 and DOW JONES. By buying the S&P 500 Index Fund, such as VFIAX, you get to own a small percentage of the entire index without having to purchase all the individual stocks yourself.

Index funds are positioned to match the risk and return of the market, and in theory in the long-term, the market will outperform any single investment or stock picker.

ETF are similar to Index funds as they are still a basket of stocks, but its main difference is that you can buy and sell it like a regular stock throughout the day, where as an Index Fund however, you are only allowed to trade once per day.

If you buy and sell an ETF throughout the day, you’ll still be paying commission on each trade just like most stocks if you are trading the ETF with a typical online broker.

Since ETFs do trade on the market, you can buy and sell it as you please, which, if you want that flexibility, it’s there. However, I think that allows to much control and could lead to the new investor making a mistake and buying and selling when they should in reality be buying and holding an ETF for the long term as it tracks the entire market.

The other difference is that with these online brokerages, you may be able to buy into ETFs using fractional shares – which means if you have $50 you can buy a portion of an ETF, instead where some Index Funds might have a minimum – VFIAX for example has an initial minimum of $3000.

So which one is right for you a beginner investor?

Watch the video and I will give you and idea of the direction I have decided to take my investing strategy. Let’s just say I am not a big fan of paying fees and I love automation.

Enjoy the video!