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Nate Obringer, RICP®
Financial Advisor
Prudential Advisors
9800B McKnight Road, Suite 223
Pittsburgh, PA 15237
Phone: 412-318-4129
Fax: 877-840-2322
Email: nate.obringer@prudential.com
May/June 2020
Bigger Baskets
Buying shares of mutual funds* generally gives investors a way to own a piece of many securities, offering some diversification** most people could not afford if they were to buy the same securities individually. Two popular investments that aim to achieve this diversity at a reasonable price are index-based mutual funds and exchange-traded funds (ETFs). While they have some similarities, there are some important differences.
Similarities
Index-based mutual funds and ETFs are passive investments. They both seek to track underlying securities’ indexes and replicate their respective returns, generally with lower fees than actively managed funds.Both types of pooled investment vehicles generally have lower fees than non-indexed mutual funds, but charge a small fee known as the expense ratio. ETFs that mimic the major indexes may have lower fees than index funds.
Differences
ETFs are not mutual funds but investments registered with the Securities and Exchange (SEC) commission. While index fund shares can only be bought or sold at the end of each trading day, ETF shares are traded throughout the day. This means index fund prices change only after trading hours. ETF prices change more frequently and, because they are traded throughout the day, they are potentially more liquid. Investment minimums also may vary between the two. Use caution, however, as some ETFs may trigger trading commissions.Get Help
While these descriptions are generalized, some ETFs can be very specialized with a small niche focus and higher fees, making them more difficult to trade and more expensive. Talk to a financial professional to learn more.*Investors should consider the investment objectives, risks, charges and expenses of the fund carefully before investing. Contact the issuing firm to obtain a prospectus which should be read carefully before investing or sending money. Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value. Past performance won’t guarantee future results. An investment in mutual funds may result in the loss of principal.
**Diversification cannot eliminate the risk of investment losses. Past performance won’t guarantee future results. An investment in stocks or mutual funds can result in a loss of principal.
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