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Mutual funds versus exchange traded funds?

- Alan Lavine and Gail Liberman

Mutual funds and exchange traded funds both pool money to invest.

With mutual funds, you only purchase shares once daily. No-load funds--with no commission--can be purchased directly from a mutual fund company.

By contrast, you must purchase exchange traded funds through a broker and pay a commission. Like stocks, exchange traded funds are traded continuously on a stock exchange.

Consider exchange traded funds:

  • If you're making a large lump sum investment.

  • If you might want to trade your funds during the day.

  • If you want to engage in fancy footwork, like short selling, which you can't do through a mutual fund. With short-selling, you borrow a security and sell it, with the aim of buying it back later at a lower price.

  • If you want to make an investment unavailable through mutual funds, such as gold bullion.

    Consider mutual funds:

  • If you expect to make small periodic investments or dollar cost average.

  • If you want a specific investment, like a type of bond fund, which lacks a comparable exchange traded fund.


    Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Rags to Retirement (Alpha Books)." You can e-mail them at MWliblav@aol.com.

    To read more columns, please visit the column archive.

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