{"id":7119,"date":"2013-11-01T15:21:13","date_gmt":"2013-11-01T22:21:13","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=7119"},"modified":"2016-12-21T07:28:19","modified_gmt":"2016-12-21T15:28:19","slug":"index-fund-vs-etfs-get-facts","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/index-fund-vs-etfs-get-facts\/","title":{"rendered":"Index Fund vs. ETFs: Get The Facts"},"content":{"rendered":"

You probably already hear a lot about investing using an\u00a0index fund\u00a0vs.\u00a0ETFs. Both are cheap, and both can be used to own whole markets.<\/p>\n

Beyond that, things can get fuzzy. There are some very detailed breakdowns of the differences, largely on tax matters. And you can catch up on the specific advantages of\u00a0ETFs\u00a0at sites such as\u00a0MoneyCrashers.com<\/a>.<\/p>\n

\"index<\/p>\n

But let’s assume you are invested in index funds in your IRA or your\u00a0workplace 401k<\/a>. Why bother looking at\u00a0ETFs? Here are a few reasons:<\/p>\n

1. No commissions!<\/strong><\/p>\n

This is a biggie. If you happen to buy an index fund run by your own brokerage, the fee might be zero. But if you buy, say, a Vanguard Fund in a Fidelity or Schwab account, get ready to fork over some money, perhaps $50 each way.<\/p>\n

If you are a set-it-and-forget person, that won’t hurt much. If you\u00a0rebalance<\/a>\u00a0among funds frequently, though, it adds up. Meanwhile,\u00a0ETFs\u00a0are largely commission-free these days or cost very little, typically $7.95 a trade.<\/p>\n

2. Usually more liquidity<\/strong><\/p>\n

Index funds are mutual funds. When you go to buy or sell, you will get end-of-day pricing. The price won’t be radically different from what you expect. But that’s no way to trade if you own several accounts and juggle five to seven\u00a0asset classes<\/a>\u00a0among them.<\/p>\n

Liquidity in an ETF means that if you go to sell it for $28 a share, you will get very close to $28, maybe off by hundredths of a cent either way. Not all\u00a0ETFs\u00a0are liquid, but the ones tracking the most common indices will be.<\/p>\n

3. Typically cheaper to own<\/strong><\/p>\n

There’s been a price war among ETF providers that isn’t being echoed, yet, among index fund providers. A commonly used S&P 500 index fund these days goes for an\u00a0expense ratio<\/a>\u00a0of 0.28%. A comparable ETF has an expense ratio of 0.05%. Quite a gap.<\/p>\n

4. More choices<\/strong><\/p>\n

We would never advise that you buy some of the more esoteric leveraged\u00a0ETFs\u00a0on the market. Almost nobody needs to play the price of sugar minute-to-minute using an exchange-traded fund. Seriously.<\/p>\n

However, it is nice that you can be invested in a variety of asset classes quite cheaply through\u00a0ETFs. Index fund providers try to keep up with demand for mid-cap, specialty and\u00a0real estate funds<\/a>, but it’s just more attractive to many investors to have the flexibility of an ETF. Consequently, there are more choices.<\/p>\n

5. Cash flow to you<\/strong><\/p>\n

If you buy an index fund, you won’t have to hassle with what to do about the\u00a0incoming dividends<\/a>. They get reinvested for you. For many long-term investors, that’s a feature.<\/p>\n

However, if you plan to rebalance frequently using cash,\u00a0ETFs\u00a0are going to send you the money to invest as you see fit. Thankfully, you’ll be doing so mostly commission-free.<\/p>\n","protected":false},"excerpt":{"rendered":"

You probably already hear a lot about investing using an\u00a0index fund\u00a0vs.\u00a0ETFs. Both are cheap, and both can be used to own whole markets. Beyond that, things can get fuzzy. There … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":7120,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[7],"tags":[52,42,43,37],"yoast_head":"\nIndex Fund vs. ETFs: Get The Facts | MarketRiders<\/title>\n<meta name=\"description\" content=\"You probably already hear a lot about using an index fund vs. ETFs. Both are cheap, and both can be used to own whole markets. 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