How Are ETF’s Different From Mutual Funds?

Exchange traded funds (ETFs) are similar to mutual funds in that they are registered with the SEC as investment companies, and they pool investor’s money into a basket of securities such as stocks, bonds, and money markets. However, ETF shares are different from mutual funds in that they trade on a stock exchange so they can be purchased during a trading day for a specific price. Thus, the value of an ETF is determined by supply and demand, not net asset value. Additionally, this allows ETFs to be sold short or bought on margin.

An ETF usually tracks a market index, commodity, or economic sector. The most common ETFs track indexes like the S&P 500, but funds can also be purchased that invest only in gold, or companies based in Shanghai. ETFs are not usually actively managed which means their expense ratio is generally lower than that of mutual funds. However, an investor will need to pay the usual commissions associated with buying and selling individual stocks in order to invest in these securities. Thus, ETFs are most appropriate for long-term investing.

About the author

Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as and (by The Wall Street Journal). Additionally, Lon is an expert author at Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or Learn more about Net Worth Advisory Group at and visit Lon's blog at

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