Both ETFs and mutual funds can track the same index, yet differ in trading, costs, and taxes. Here’s how to choose in 2025.
Costs
- Expense ratios: Often similar for large index funds.
- Trading costs: ETFs may have bid-ask spreads; mutual funds trade at NAV.
- Other fees: Broker commissions are rare but still exist at some firms.
Taxes
ETFs are generally more tax-efficient due to in-kind redemptions. Mutual funds can distribute capital gains annually even if you don’t sell.
When to Choose Each
- ETF: Intraday trading, tax efficiency, transparent holdings.
- Mutual fund: Simplicity for automatic investments, fractional purchases without premiums/discounts.
Target-Date Funds
For set-it-and-forget-it investors, target-date mutual funds or ETFs provide a built-in glidepath and automatic rebalancing.
See our Wealth Tracking tools, and review asset mixes in Asset Allocation by Age.