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Understanding investment types

ETFs vs. mutual funds: A comparison

Learn the difference between a mutual fund and ETF by comparing ETF vs. mutual fund minimums, pricing, risk, management, and costs to decide what's best for you.
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You may be surprised by how similar ETFs (exchange-traded funds) and mutual funds are. Just a few key differences set them apart.

Similarities between mutual funds and ETFs

The biggest similarity between ETFs (exchange-traded funds) and mutual funds is that they both represent professionally managed collections (or "baskets") of individual stocks or bonds.

More traits that ETFs & mutual funds have in common

Both are less risky than investing in individual stocks & bonds

ETFs and mutual funds spread your investments across a broad range of asset classes, sectors, and geographies to bring you built-in diversification—a strategy intended to help lower your chances of losing money on your investments.

Here's how it works. One fund could include tens, hundreds, or even thousands of individual stocks or bonds to help reduce the impact of a single security's poor performance. For example, if one stock or bond in the fund is doing poorly, there's a chance that another is doing well. This strategy can help stabilize your portfolio by potentially offsetting losses in one area with gains in another.

Additionally, ETFs and mutual funds often have professional managers who actively monitor and adjust the portfolio to minimize risk and maximize returns. This professional oversight can further reduce risk by ensuring the portfolio is aligned with the investment objectives and is adjusted appropriately in response to market conditions.

See how ETFs also help cut your costs

Both offer a wide variety of investment options

ETFs and mutual funds both give you access to a wide variety of U.S. and international stocks and bonds. The funds either track a benchmark index like the S&P 500 or are actively managed. You can invest:

Broadly: For example, with a total market fund that invests in U.S. or international stocks or bonds. Total market funds typically replicate the performance of a broad market index and provide exposure to the entire bond or stock market or a representative sample of the bonds or stocks in that index, offering diversification across various sectors and companies.

Narrowly: For example, a high-dividend stock fund or a sector fund that invests in a specific industry, such as technology, health care, energy, or real estate. Though sector funds have the potential to grow, you should be equally prepared for higher risk and volatility due to the lack of diversification across different sectors.

Anywhere in between. It all depends on your personal goals and investing style. At Vanguard, we offer more than 80 ETFs and more than 250 mutual funds.

There are funds for every kind of investor. Here's how to decide on the mutual funds or ETFs that are right for you

Both are overseen by professional portfolio managers

ETFs and mutual funds are managed by experts. Those experts choose and monitor the stocks or bonds the funds invest in, saving you time and effort.

Although most ETFs—and many mutual funds—are index funds, the portfolio managers are still there to make sure the funds don't stray from their target indexes.

Here's how a portfolio manager is different from a personal financial advisor:

  • The manager of an index fund is responsible for managing a fund that tracks a specific index. Their role is to help maintain the fund's alignment with the index.
  • The manager of an actively managed fund uses their expertise to try to beat the market—or, more specifically, to beat the fund's benchmark.
  • A financial advisor provides tailored advice taking into consideration your goals, risk tolerance, and personal circumstances. They offer guidance on a wide range of financial matters, including strategies to help lower your taxes, retirement planning, portfolio oversight, and more.

Both are commission-free at Vanguard

All ETFs and Vanguard mutual funds can be bought and sold online commission-free in your Vanguard Brokerage Account.1

Differences between ETFs & mutual funds

If you prefer lower investment minimums …

ETFs

An ETF could be more suitable for you.

You can buy an ETF for the price of 1 share—commonly referred to as the ETF's market price. Depending on the ETF, that price could be as little as $50 or as much as a few hundred dollars.

Estimate the total price of your ETF trade

Check current prices for all Vanguard ETFs®


Mutual funds

A mutual fund may not be a suitable investment.

Mutual fund minimum initial investments aren't based on the fund's share price. Instead, they're a flat dollar amount.

Most Vanguard mutual funds have a $3,000 minimum.** That would buy you 30 shares of a hypothetical fund with a net asset value (NAV) of $100 per share.

If you want more hands-on control over the price of your trade…

ETFs

An ETF could be a suitable investment.

Not only do ETFs provide real-time pricing, but they also let you use more sophisticated order types that give you the most control over your price.

If you want to keep things simple, that's OK! Just stick with a market order. It'll get you the best current price without the added complexity.


Mutual funds

A mutual fund may not be a suitable investment.

Regardless of what time of day you place your order, you'll get the same price as everyone else who bought and sold that day. That price isn't calculated until after the trading day is over.

If you want to repeat specific transactions automatically…

ETFs

An ETF may not be a suitable investment.

You can't make automatic investments or withdrawals into or out of ETFs.


Mutual funds

A mutual fund could be a suitable investment.

You can set up automatic investments and withdrawals into and out of mutual funds based on your preferences.

If you're looking for an index fund…

ETFs

An ETF could be a suitable investment.

Most ETFs are index funds (sometimes referred to as "passive" investments), including our lineup of nearly 70 Vanguard index ETFs.


Mutual funds

A mutual fund could also be a suitable investment.

We also offer more than 65 Vanguard index mutual funds.

Compare index funds vs. actively managed funds

Learn how an active fund manager compares with a personal advisor

What's the difference between mutual funds and ETFs?

  ETFs Mutual funds

What's the minimum investment?

If you prefer lower investment minimums, an ETF might be more suitable for you.

You can buy a Vanguard ETF® for as little as $1.

Non-Vanguard ETFs can be purchased for as little as the cost of one share.

Check current prices for all Vanguard ETFs

Mutual fund minimum initial investments aren't based on the fund's share price. Instead, they're a flat dollar amount.

Most Vanguard mutual funds have a $3,000 minimum.2 That would buy you 30 shares of a hypothetical fund with a net asset value (NAV) of $100 per share.

How are they traded?

ETFs trade throughout the trading day at market prices. This provides real-time pricing and the ability to execute trades quickly. The price you pay or receive can change based on exactly what time you place your order.

ETFs not only provide real-time pricing, but also let you use more sophisticated order types that give you the most control over your price.

If you want to keep things simple, that's OK! Just stick with a market order. It'll get you the best current price without the added complexity.

Mutual funds are priced at the end of the trading day and bought or sold based on their NAV, which is calculated after the market closes, typically around 4 p.m., Eastern time.

Regardless of what time of day you place your order, you'll get the same price as everyone else who bought and sold that day (before market close). That price is calculated based on the closing prices of every security owned by the fund.

Can I make automatic investments?

Effective January 2025, you can set up automatic investments (purchases) into your Vanguard ETF positions.

You can set up automatic investments and withdrawals into and out of mutual funds based on your preferences.

 

What's the tax efficiency of ETFs vs. mutual funds?

Because index mutual funds and ETFs generally trade less frequently, they tend to be more tax-efficient and have lower expense ratios than actively managed funds—which could mean lower costs for you.

Compare index funds vs. actively managed funds to learn more about their differences.

When it comes to ETF tax efficiency, these funds may have an additional tax benefit because of the way they trade. When ETF shares are sold, they're exchanged between buyers and sellers on the market as opposed to the fund company. This means the fund itself usually isn't involved in the transaction and doesn't have to sell any securities, potentially triggering capital gains.

 

Are you looking to invest in index funds?

 Most ETFs are index funds (sometimes referred to as "passive" investments), including our lineup of more than 80 Vanguard index ETFs. We also offer more than 130 Vanguard index mutual funds.

ETF or Mutual fund: Which is better for you?

Should I invest in mutual funds or ETFs? The choice depends on several factors. ETFs offer greater flexibility and trading control, as they can be bought and sold throughout the trading day like stocks. They also tend to be more tax-efficient due to the way they trade. Mutual funds, on the other hand, may offer a longer history, which can help you evaluate performance.

When you're researching funds, it's important to consider the fund's expense ratio, trading commissions, and your target asset allocation—the combination of stocks, bonds, and cash you should hold in your portfolio.

Our average expense ratio across our mutual funds and ETFs is 82% lower than the industry average.3 Plus there are no trading commissions when you buy and sell Vanguard mutual funds or ETFs online.4

Vanguard's ETFs

Our ETFs combine the diversification of mutual funds with real-time pricing—all with an investment minimum of just $1.

Ready to choose which ETFs you want to invest in?

Buy ETFs

Vanguard's mutual funds

Vanguard has both index mutual funds and actively managed mutual funds.

Ready to choose which mutual funds you want to invest in?

Buy mutual funds

Vanguard's asset allocation tools

Take our investor questionnaire to find the right balance of stocks and bonds for your portfolio based on your goals and risk tolerance. You can also view how 9 model portfolios have performed in the past. 

TRAITS WE HAVEN'T COMPARED YET

What about comparing ETFs vs. mutual funds when it comes to performance? Risk? Expense ratios? Taxes?

Comparing these and other characteristics makes good investing sense. But unfortunately, it's not as easy as categorically comparing "all ETFs" to "all mutual funds."

For example, if you compare a stock ETF with a bond mutual fund, the ETF-vs.-mutual-fund comparison isn't as important. What matters is that each invests in something completely different and, therefore, behaves differently.

Instead, compare 1 specific fund with another.

 

Compare up to 5 specific ETFs or mutual funds

 

Get one step closer to your goals.

Open an account today

How an active fund manager compares with a personal advisor



The manager of an actively managed fund is hired by the fund to use his or her expertise to try to beat the market—or, more specifically, to beat the fund's benchmark.

A personal financial advisor, on the other hand, is hired by you to manage your personal investments, which could include actively managed funds, index funds, and other investments. How "actively" your advisor monitors your accounts or buys and sells investments—daily, weekly, monthly, etc.—is based on the relationship you establish with your advisor.

Estimate the total price of your ETF trade

 

Simply multiply the current market price by the number of shares you intend to buy or sell.

How this is different from buying & selling mutual funds

With a mutual fund, you buy and sell based on dollars, not market price or shares. And you can specify any dollar amount you want—down to the penny or as a nice round figure, like $3,000.

With an ETF, you buy and sell based on market price—and you can only trade full shares. So you're more likely to see a dollars-and-cents amount, rather than a round figure.

Net Asset Value (NAV)

The market value of a mutual fund's total assets, minus liabilities, divided by the number of shares outstanding. The value of a single share is called its share value or share price.

Minimum initial investment

The minimum amount of money you need to begin investing in a specific mutual fund.

Order type



When buying and selling ETFs, you can typically choose from 4 order types—just like you would when trading individual stocks:

  • Market order. This is the most basic order type. A market order will typically be completed almost immediately at a price that's close to the current market price.
  • Limit order. This is generally used when you want to maximize your profits. When buying ETF shares, you'd typically set your limit below the current market price (think "buy low"). When selling ETF shares, you'd typically set your limit above the current market price (think "sell high").
  • Stop order. This is generally used when you want to minimize your losses but aren't able to stay on top of minute-to-minute changes in an ETF's market price. When buying ETF shares, you'd typically set your stop price above the current market price (think "don't buy too high"). When selling ETF shares, you'd typically set your limit below the current market price (think "don't sell too low").
  • Stop-limit order. This is even more specific than a stop order. The stop price triggers the order; then the limit price lets you dictate exactly how high is too high (when buying shares) or how low is too low (when selling shares).

Understand the benefits & risks of different order types

Index funds

A type of mutual fund that seeks to track the performance of a particular market index by buying and holding all or a representative sample of the securities in the index, in the same proportions as their weightings in the index.

Market order



An order to buy or sell an ETF at the best price currently available. In most circumstances, the trade will be completed almost immediately at a price that's close to the current quoted market price.

Understand the benefits & risks of different order types

Real-time pricing

 

Just like an individual stock, the price of an ETF can change from minute to minute throughout any trading day. The price you pay or receive can therefore change based on exactly what time you place your order. This is sometimes referred to as "intraday" pricing.

On the other hand, a mutual fund is priced only at the end of the trading day. Regardless of what time you place your trade, you and everyone else who places a trade on the same day (before the market closes that day) receives the same price, whether you're buying or selling shares.

Diversification


A strategy intended to lower your chances of losing money on your investments.

Diversification can be achieved in many ways, including spreading your investments across:

  • Multiple asset classes, by buying a combination of cash, bonds, and stocks.
  • Multiple holdings, by buying many bonds and stocks (which you can do through a single ETF or mutual fund) instead of only 1 or a few.
  • Multiple geographic regions, by buying a combination of U.S. and international investments.

Protect yourself through diversification

Stock


Usually refers to a "common stock," which is an investment that represents part ownership in a corporation, like Apple, GE, or Facebook.

Each share of a stock is a proportional share in the corporation's assets and profits.

Bond


Represents a loan given by you—the bond's "buyer"—to a corporation or a local, state, or federal government—the bond's "issuer."

In exchange for your loan, the issuer agrees to pay you regular interest and eventually pay back the entire loan amount by a specific date.

Cut your costs with ETFs



Maybe you're thinking about handcrafting your portfolio. Before you do, make sure you understand the costs. (All examples below are hypothetical.)

Trading individual stocks

Imagine you want 25 different stocks in your portfolio, each of which is selling for $50 a share, and you're charged a $5 commission for each trade.

$1,250 purchase price (25 stocks multiplied by $50 per share)

+ $125 in commissions (25 stocks multiplied by $5 per stock)

= $1,375 total cost

 

Trading ETFs

An ETF can help you obtain the same level of diversification but at a much lower cost.

For example, imagine you buy 1 ETF online that holds all 25 stocks and costs $50 a share, and you enjoy Vanguard's commission-free trading.

$50 purchase price (1 ETF multiplied by $50 per share)

+ $0 in commissions (for Vanguard ETFs® held in a Vanguard Brokerage Account)

= $50 total cost

Total market fund



An ETF or a mutual fund that invests in U.S. or international bonds or stocks at the broadest level.

"Total bond" funds invest in a combination of short-, intermediate-, and long-term bonds with varying degrees of credit quality and risk.

"Total stock" funds invest in a combination of small, mid-size, and large companies with varying degrees of value (meaning they focus on paying dividends) and growth (meaning they focus on increasing the price of their stock).

Total market funds typically follow an indexing strategy—choosing a broad market index that tracks the entire bond or stock market and investing in all or a representative sample of the bonds or stocks in that index.

Sector fund



An ETF that invests in a specific industry, like energy, real estate, or health care.

Though sector ETFs have the potential to grow, you should be equally prepared for potentially large losses.

How a fund manager is different from a personal financial advisor



A fund manager is hired by the ETF to watch over which stocks or bonds are included in the ETF.

A financial advisor is hired by you to manage your personal investments, which could include ETFs, mutual funds, individual securities, or other investments.

Commission

 

A fee that a broker or brokerage company charges every time you buy or sell a security, like an ETF or individual stock.

Review our complete commission & fee schedules

Estimate the total price of your ETF trade

 

Simply multiply the current market price by the number of shares you intend to buy or sell.

How this is different from buying & selling mutual funds

With a mutual fund, you buy and sell based on dollars, not market price or shares. And you can specify any dollar amount you want—down to the penny or as a nice round figure, like $3,000.

With an ETF, you buy and sell based on market price—and you can only trade full shares. So you're more likely to see a dollars-and-cents amount, rather than a round figure.

How an active fund manager compares with a personal advisor



The manager of an actively managed fund is hired by the fund to use his or her expertise to try to beat the market—or, more specifically, to beat the fund's benchmark.

A personal financial advisor, on the other hand, is hired by you to manage your personal investments, which could include actively managed funds, index funds, and other investments. How "actively" your advisor monitors your accounts or buys and sells investments—daily, weekly, monthly, etc.—is based on the relationship you establish with your advisor.

Market price



The current, real-time price at which an ETF can be bought or sold. More specifically, the market price represents the most recent price someone paid for that ETF. You'll pay the full market price every time you buy more shares.

Unlike an ETF's or a mutual fund's net asset value (NAV)—which is only calculated at the end of each trading day—an ETF's market price can be expected to change throughout the day. (A mutual fund doesn't have a market price because it isn't repriced throughout the day.)

Minimum initial investment



The amount of money you'll need to make your first investment in a specific mutual fund. (ETFs don't have minimum initial investment requirements beyond the price of 1 share.)

After you meet the minimum, you can typically add as little as $1 at a time to the same mutual fund.

Net asset value (NAV)



Represents the value of all of the securities and other assets held in an ETF or a mutual fund, minus its liabilities, divided by the number of outstanding shares.

Consider this hypothetical example:

Total fund assets: $1,100,000

Minus fund liabilities: $100,000

Equals the fund's net assets: $1,000,000

Divided by the number of outstanding fund shares: 10,000

Equals the fund's NAV: $100 per share

Both ETFs and mutual funds calculate NAVs. However, unlike an ETF's market price—which can be expected to change throughout the day—an ETF's or a mutual fund's NAV is only calculated once per day, at the end of the trading day.

Automatic investment & withdrawal



An optional service that lets you pick a frequency—monthly, quarterly, or annually—along with a date and a dollar amount to move into or out of a specific investment on a repeat basis. Think of this as a "set it and forget it" way to make consistent investments.

For example, some investors want to make sure they max out their IRA contributions every year. But they prefer to spread the contributions over the course of the year, and they don't want to forget a transaction by accident.

So instead of putting all the money in at once, they set up monthly or quarterly purchases that happen automatically—no logon or phone call required. Just constant savings!

Index fund

 

An ETF or a mutual fund that attempts to track the performance of a specific index (sometimes referred to as a "benchmark")—like the popular S&P 500 Index, Nasdaq Composite Index, or Dow Jones Industrial Average.

An index fund buys all or a representative sample of the bonds or stocks in the index that it tracks.

Learn more about the benefits of index funds

Commission-free trading of Vanguard ETFs applies to trades placed online; most clients will pay a commission to buy or sell Vanguard ETFs by phone. Commission-free trading of non-Vanguard ETFs applies only to trades placed online; most clients will pay a commission to buy or sell non-Vanguard ETFs by phone. Vanguard Brokerage reserves the right to change the non-Vanguard ETFs included in these offers at any time. All ETFs are subject to management fees and expenses; refer to each ETF's prospectus for more information. Account service fees may also apply. All ETF sales are subject to a securities transaction fee. See the Vanguard Brokerage Services commission and fee schedules for full details. 

2Vanguard Target Retirement Funds and Vanguard STAR® Fund have a $1,000 minimum. Most other Vanguard funds have a $3,000 minimum. Some Vanguard funds have higher minimums to protect the funds from short-term trading activity. Fund-specific details are provided in each fund profile.

3Vanguard average expense ratio: 0.08%. Industry average expense ratio: 0.44%. All averages are asset-weighted. Industry average excludes Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2023.

4Trading limits, fund expenses, and minimum investments may apply. See the Vanguard Brokerage Services commission and fee schedules for limits.

For more information about Vanguard funds or ETFs, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free online) or through another broker (who may charge commissions). See the Vanguard Brokerage Services Commission and Fee Schedules for limits. Vanguard ETF Shares are not redeemable directly with the issuing Fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility.