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ETFs and Mutual Funds

Investing in stocks or bonds can be done on an individual basis or as a group investment through ETFs (exchange traded funds) or Mutual Funds. However, owning a smaller portfolio of individual stocks has associated volatility. Designed for diversification, both ETFs and mutual funds are accomplished by holding a collection of bonds, stocks or as blended funds (a mixture of both) This is an easy and a typically lower risk way to invest, in a bunch of different company stocks, as you are diversifying your investments.

ETFs and Mutual Funds that invest in a large group of the stock market are very popular. This easy and efficient method allows for your risk to be distributed across the entire stock index.

Fund Transparency

ETFs and Mutual Funds are often bought directly by consumers with an additional purchase fee paid to an investment management company. There is an additional annual fee for any investment which for most ETFs and mutual funds is a small percentage of assets under management between 0.05% – 1%. ETFs typically have lower expense ratios than a Mutual Fund. They also offer more transparency from being traded directly with a clear view of the purchased stocks.

Trading Flexibility

ETFs like stocks can be traded online at any time of day. ETFs allow for the flexibility of setting market limits. On the other hand Mutual Funds can only be traded when the market closes at the end of the day.  This locks the investor to the market price for that specific day as they are unable to set a market limit on buying or selling.

Mutual Funds often charge an annual fee if the investment falls below the allowable minimum limit. There are Mutual Funds with low minimums but they need to be researched. Capital Associates are experts in this field and can advise you to achieve successful investing. Unlike Mutual Funds, ETFs can be acquired with as many or as little shares as one likes as they do not have set purchase minimums. Therefore, you can further reduce your risk by investing in multiple ETFs.

Tax Expectations

It is easier to pay capital gains tax on ETFs and our financial experts offer bespoke financial solutions and can help you with the complexities of mutual funds. We can ensure that investors are aware of any taxes owed on the gains of their trades as even when the entire mutual fund is at a loss an investor may have to pay taxes. Whilst when there are no gains from ETFs there is transparency and no taxes to be paid.

The stocks that make up a Mutual Fund or ETF are passively managed, chosen when the fund is established and updated very infrequently or the stocks inside the fund are actively managed and chosen more frequently by bankers. The latter, active management generally has higher management fees because they take more work for the fund company.

Click here to find out more about Capital Associates wealth management expertise and investment strategies.

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