An Exchange-Traded Fund (ETF) is a basket of investments (like stocks or bonds) that allows you to pool your money with other investors. This pooling gives you instant diversification—a single ETF can hold anywhere from 100 to over 3,000 different securities, spreading your risk across entire markets or sectors.
ETFs vs. Mutual Funds: Key Differences
While both products offer diversification through pooled assets, they function differently in the marketplace:
Feature | Exchange-Traded Funds (ETFs) | Mutual Funds |
Trading | Traded on an exchange (like a stock) all day. | Only bought or sold once per day after markets close. |
Pricing | Real-time market price fluctuates throughout the day. | Priced at the end of the day based on the Net Asset Value (NAV). |
Costs | Generally much lower MERs (Management Expense Ratios). | Often higher fees due to active management and "trailing commissions." |
Minimums | No investment minimums (you can buy as little as one share). | Often require a minimum initial investment (e.g., $500–$1,000). |
Sales Fees | No "sales loads" or redemption fees. | May have front-end or back-end sales charges (though many are now "no-load"). |
Why ModernAdvisor Uses ETFs
We prioritize ETFs for our clients because the cost savings directly impact your long-term returns.
Lower Operating Expenses: Most ETFs are passively managed, meaning they track a specific index rather than paying a team of expensive managers to try and "beat the market." This results in significantly lower fees.
Liquidity and Transparency: You can see exactly what assets an ETF holds daily, and the ability to trade on the exchange ensures your portfolio can be rebalanced efficiently at any time.