Differentiating the ETF from Traditional Index Funds

If you are considering an ETF, index funds will most likely also be an option for you. Two very similar options for financial funds are the ETF and the index fund. The index fund has been around since the 1970's while the ETF was first invented in the 1990's. While more people are familiar with the index fund, that does not necessarily make it the better option of the two. Here are a few things that you will want to consider about ETFs and index funds before choosing one. 

Index Fund

An index fund is an investment tool that is designed to track the movements of a particular index such as the S & P 500. Most of the time the index fund is set up as a mutual fund and incurs many of the same costs. These are great investment tools for the passive investor. You can purchase them at any bank and they require little management by you.

ETF

If you are more of an active investor, an ETF may be for you. You can trade these just like you would a stock on a stock exchange. They are also known for being less expensive than index funds in general. There are ETFs available for almost any industry under the sun. This makes them more appealing for a variety of investors. 

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