From the outside, an iPhone and an Android phone look quite similar. They have similar dimensions, features, and apps. But if you’ve only used an iPhone, using an Android phone feels anything but familiar and doing even basic tasks takes a while to figure out.
Likewise, on the surface, ETFs and mutual funds generally share common characteristics such as liquidity and diversification. But underneath the surface, ETF liquidity is significantly different from mutual fund liquidity.1
1 ETFs and mutual funds have other differences as well: Unlike traditional open-ended mutual funds, ETF shares are often bought and sold in the secondary market through a financial advisor and brokerage commissions may apply. ETFs trade on the major stock exchanges and their prices will fluctuate throughout the day. When buying or selling an ETF, an investor will pay or receive the current market price, which may be more or less than net asset value. Mutual fund investors buy and sell directly with the mutual fund issuer and mutual fund shares are priced once a day after the markets close. Both mutual funds and ETFs are subject to risk and volatility.
Investing involves risk, including the possible loss of principal.
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