Thomas-Brock-26-How are ETFs different from mutual funds
Thomas Brock explains that both ETFs and mutual funds pool assets for investors, but ETFs trade like stocks throughout the day and are usually passive, while mutual funds trade once daily through the sponsor and can be active or passive.
Video Transcript
Exchange traded funds and mutual funds are both pooled investment vehicles that buy up assets and offer investors share based access to all those underlying assets.
An exchange traded fund trades just like a stock, meaning its price is fluctuating throughout the day and you can buy and sell it with a high degree of liquidity in most circumstances. A mutual fund is a little different.
You are buying or selling mutual funds directly with the fund's sponsor.
And they mark the price of the fund at the end of each business day based on the underlying assets. In other words, you can't trade it throughout the day like an exchange traded fund. Another major difference between mutual funds and exchange traded funds are the nature of their investment strategies.
Mutual funds can be either passive or active. By passive, I mean they simply follow a stock index such as the S and P five hundred.
By active, you're dealing with fund managers that consider themselves to be stock pickers.
Now an exchange traded fund is different than this. Most exchange traded funds are passively managed and they will track indices like the S and P five hundred and the NASDAQ composite.
They give you very low cost access to all the assets in those indices.
