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Index Funds are traded once daily. The price is set after the market closes. But both track indexes like S&P 500 and spread risk as well.
What is an ETF?
In ETFs (Exchange-Traded Funds) you can trade anytime during market hours. For instance, SPY ETF includes all 500 companies in the S&P 500.
- Features:
- The stock price changes minute-to-minute.
- It has very low fees, usually between 0.03%-0.20% per year.
- It has no minimum investment. You can buy 1 share for as low as $10 via fractional shares.
What Is an Index Fund?
Index Funds track a market index and are priced once in a day. For instance, VFIAX (Vanguard’s S&P 500 index fund) is an index fund .
- Features:
- You can trade only once/day and the price are set after the market closes..
- It has low fees similar to ETFs.
- It often requires $1,000+ to start, but some apps like Fidelity offer $0 minimums.
4 Similarities
1. Diversification: Both help investors to spread risk across many companies.
2. Low Fees: They are both very cheaper than actively managed funds.
3. Passive Investing: It really tracks indexes, meaning no need to pick stocks.
4. Long-Term Growth: It's often ideal for 5-10+ year goals.
How to Choose
1. If you trade during the day, then you have to choose ETFs.
2. If you are interested in auto-investing monthly, then pick index funds.
3. If you have a limited budget and you want to start with under $1,000, pick ETFs because it has lower minimums.