In this replay episode, we're revisiting one of the most common investing questions: Should you invest in exchange-traded funds (ETFs) or mutual funds?

Both ETFs and mutual funds can be excellent investment vehicles, especially when you're investing in low-cost index funds. In this episode, I break down the key similarities and differences between the two, including:

• How ETFs and mutual funds provide diversification
• Differences in trading and pricing
• Minimum investment requirements
• Automatic investing and dollar-cost averaging
• Tax efficiency considerations
• Expense ratios and other costs
• Dividend reinvestment
• Transparency and fund holdings

Important Update Since the Original Recording

In the original episode, I discussed how ETFs generally had to be purchased in whole shares while mutual funds could be purchased in fractional shares. Since that recording, many major brokerages now allow investors to purchase fractional shares of ETFs, making it possible to invest a specific dollar amount without buying a full share.

As a result, one of the historical advantages of mutual funds has become less significant for many investors. However, availability of fractional-share ETF investing varies by brokerage platform, so be sure to check your brokerage's specific features.

Key Takeaway

For long-term investors, the choice between ETFs and mutual funds often comes down to convenience, costs, tax considerations, and personal preference rather than investment performance. Both can be effective tools for building wealth when used as part of a disciplined, long-term investing strategy.

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Dr. Elisa Chiang is a physician and money coach who helps other doctors reach their financial goals by mastering their money mindset through personalized 1:1 coaching .

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