How do I decide between mutual funds and ETFs?
(NC) Investment funds can play a valuable role in helping you build wealth and financial security.
While mutual funds remain the most common investment choice in Canada, exchange traded funds (ETFs) are rising in popularity. There are currently more than 3,400 mutual funds and approximately 660 ETFs listed in Canada. Having both products as investment options offers investors a variety of investment choices.
The key is understanding the similarities and differences and how these products can each play a role in helping you achieve your financial objectives.
ETFs and mutual funds are both professionally managed investment funds, with built-in diversification and liquidity. Both offer a range of investment strategies and access to a range of asset classes – from money markets to equities and bonds, and across domestic and international markets.
Here are some of the differences. Mutual funds have been around longer, so some have a long performance track record, compared to most ETFs, which are a newer product type.
ETFs are valued throughout the trading day, so the amount you pay for one is determined at the time you buy it. Mutual funds on the other hand are valued once a day, so the amount you pay for one is determined at the end of each trading day, when the net asset value for the day has been calculated.
For the most part, it is easier to make smaller purchases of mutual funds on a regular basis. Because of brokerage commissions that may apply, buying ETFs with smaller dollar amounts every month can be inefficient and costly.
Mutual funds and ETFs can and do co-exist in a well-diversified portfolio of investments. Having access to both provides a wider range of products and investment strategies to choose from than ever before. Work with your advisor to create a portfolio that best meets your needs.
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