ETFs vs. Mutual Funds vs. Stocks

A break down of the differences between ETFs, Mutual Funds, and Stocks in an easy to understand way.

What They Are: A stock represents ownership in a single company. When you buy a share of stock, you own a piece of that company.
How They Work: Stocks are traded on stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ. Their prices change throughout the trading day based on supply and demand.
Example: If you buy a share of Apple Inc. (AAPL), you own a small part of Apple.

What They Are: A mutual fund is a pooled investment vehicle that collects money from many investors to buy a diversified portfolio of stocks, bonds, or other securities.
How They Work: Mutual funds are managed by professional fund managers. Investors buy shares of the mutual fund, and the value of these shares is determined at the end of the trading day (not throughout the day).
Types: There are various types of mutual funds, such as stock (equity) funds, bond funds, and money market funds.
Example: If you invest in a mutual fund like the Vanguard 500 Index Fund (VFIAX), your money is pooled with other investors' money to buy shares of all 500 companies in the S&P 500 index.

What They Are: An ETF is similar to a mutual fund in that it holds a basket of assets (stocks, bonds, etc.), but it trades on an exchange like a stock.
How They Work: ETFs can be bought and sold throughout the trading day, with prices fluctuating based on supply and demand. They aim to replicate the performance of a specific index or sector.
Types: Like mutual funds, ETFs can focus on stocks, bonds, commodities, or specific sectors.
Example: The SPDR S&P 500 ETF (SPY) is an ETF that tracks the performance of the S&P 500 index, just like the Vanguard 500 Index Fund does for mutual funds.
Learn More: What is an Exchange-Traded Fund?

	Stock	Mutual Fund	ETF
Trading	Bought and sold throughout the day on stock exchanges.	Bought and sold at the end of the trading day at the fund’s net asset value (NAV).	Traded throughout the day on stock exchanges like stocks.
Management	No management; you make all the buying and selling decisions.	Actively managed by professional fund managers (some mutual funds can be passively managed).	Typically passively managed to track an index (some actively managed ETFs exist).
Minimum Investment	You can buy as little as one share.	Often have minimum investment requirements (e.g., $1,000 or more).	You can buy as little as one share, similar to stocks.
Fees	Transaction fees when buying or selling (though many brokerages now offer commission-free trading).	Expense ratios (annual fees) and sometimes sales loads (fees when you buy or sell).	Generally have lower expense ratios than mutual funds and transaction fees (though many brokerages offer commission-free ETF trading).
Transparency	You know exactly what you own.	Holdings are disclosed periodically (monthly or quarterly).	Holdings are disclosed daily.