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Understanding investment types

Deciding on the mutual funds or ETFs you want

There are funds for every kind of investor. Here's how to find the ones that are right for you.
4 minute read

Points to know

  • All-in-one funds give you a complete portfolio in a single fund.
  • Funds either track a benchmark index—like the S&P 500—or are actively managed.
  • There are 2 kinds of funds: mutual funds and ETFs. They're similar but trade differently.

Want to make this simple? We can help

Investing for retirement?

A target-date fund can make investing easier. Find the right fund based on your approximate retirement date, and the fund will invest in an appropriate asset allocation, then modify the mix as time goes by so that your risk gets lower as you draw closer to retirement.

See how Vanguard Target Retirement Funds work

Investing for something else?

Some funds let you choose a risk "flavor" (like conservative, moderate, or aggressive). The fund then invests in an appropriate asset allocation and maintains that mix.

See how Vanguard LifeStrategy® Funds give you a complete portfolio

Want to create your own portfolio?

If you'd like to choose mutual funds or ETFs on your own, there are a few more decisions you'll need to make.

Index or active?

A combination of index and active strategies can help you meet your goals. Many people start with a core portfolio of index funds and then add actively managed funds for certain market segments.

Index mutual funds & ETFs

You have a chance to keep pace with market returns because index funds try to mirror certain market segments. But not all index funds are created equal.

See how our index funds stand above the rest

Actively managed mutual funds

Or you can try to beat market returns with investments hand-picked by our professional money managers. You may be surprised by our active funds' performance.

Discover our active funds' quiet success story

Want to a see side-by-side comparison of the 2 types of funds?

Compare index vs. actively managed funds

Exchange-traded funds: Clarity amid the clutter (PDF)

Are you interested in investing in your values?

If you want to match your dollars with what matters to you, we offer a selection of funds that consider environmental, social, and governance factors.

Explore how ESG investments can help you meet your goals

Mutual funds or ETFs?

If you decide on an index strategy, you'll also need to decide what kind of funds you want to invest in.

  • Mutual funds own a portfolio of stocks or bonds, and they're priced at the end of each day, based on the closing prices of every security owned by the fund. When you buy or sell mutual fund shares, the price you'll pay or receive is that night's closing price.
  • Exchange-traded funds (more commonly known as ETFs) also own a portfolio of stocks or bonds, but shares of these funds trade on an exchange, like stocks, with constantly shifting prices.

Unlike with mutual funds, the current price of an ETF share isn't always perfectly aligned with the values of the underlying investments. However, for ETFs that are very liquid, these values tend to stay very close.

Compare ETFs vs. mutual funds


Use these tools to help you narrow down your choice of mutual funds and ETFs.

Fund ratings: A surefire way to pick?

Many people wouldn't dream of making a major purchase without checking product ratings. In fact, some people make decisions based solely on ratings.

So when you hear about fund ratings, it may seem like the best way to choose your funds is to buy the ones with the most stars.

But be careful. Most fund rating systems rely heavily on the funds' recent performance figures—which would be fine if a fund's past performance told you anything about its future performance.

Generally, however, it doesn't. In fact, based on past history, a recent streak of great performance suggests that a performance lag may be in the future.

We appreciate when one of our funds gets some formal recognition, but you usually won't find ratings on our website. It's fine to check out a fund you're considering to see how it's rated and why—just make sure you don't use ratings as the sole basis for your decision.

How should you choose investments?

Start with your asset allocation

Pay attention to costs

Learn more

Actively managed funds or passive index funds? Get tips for building a portfolio with both active and passive investments.

Active or passive? Tips for building a portfolio.

A fund by any other name ... See how ETFs and mutual funds are similar—and how they're different.

ETFs 101

Volatility or flexibility? Our experts explain what to consider when deciding on a type of fund.

Comparing ETFs to mutual funds

Saving for retirement or college?

See guidance that can help you make a plan, solidify your strategy, and choose your investments.

Already know what you want?

From ETFs and mutual funds to stocks and bonds, find all the investments you're looking for, all in one place.

Start investing now

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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. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.

Each LifeStrategy Fund invests in 4 broadly diversified Vanguard funds and is subject to the risks associated with those underlying funds.

ESG funds are subject to ESG investment risk, which is the chance that the stocks or bonds screened by the index provider for ESG criteria generally will underperform the market as a whole or, in the aggregate, will trail returns of other funds screened for ESG criteria. The index provider’s assessment of a company, based on the company’s level of involvement in a particular industry or the index provider’s own ESG criteria, may differ from that of other funds or of the advisor’s or an investor’s assessment of such company. As a result, the companies deemed eligible by the index provider may not reflect the beliefs and values of any particular investor and may not exhibit positive or favorable ESG characteristics. The evaluation of companies for ESG screening or integration is dependent on the timely and accurate reporting of ESG data by the companies. Successful application of the screens will depend on the index provider’s proper identification and analysis of ESG data.