EquiFi

You have $1,000 ready to invest in a broad stock fund, and your broker shows two options holding nearly the same stocks — one is an ETF, the other a mutual fund. Which one should you pick? The short answer: an ETF and a mutual fund are two wrappers for the same idea — a basket of investments owned by many people. What differs is how you buy and sell, when the price is set, and what you pay in fees and taxes. For a beginner, the fund inside the wrapper matters more than the wrapper itself — but in a taxable account, the ETF's structure usually keeps more of your money. What an ETF actually is An ETF is a basket of securities that trades on a stock exchange, just like a single stock. ETF stands for exchange-traded fund. Each share you buy represents a slice of everything the fund holds — hundreds of stocks, bonds, or other assets. You buy and sell shares through your broker during market hours, at whatever price the market sets at that moment. The price moves all day. Behind the...

The short answer: open the fund's prospectus, find the table titled "Fees and Expenses of the Fund" near the front, and look for the line called Total Annual Fund Operating Expenses — that is the expense ratio, the percentage of your money the fund keeps every year. Then read the "Example" box right below it, which translates that percentage into dollars on a hypothetical $10,000 investment. A 1% fee sounds like pocket change. But the SEC's own illustration shows $100,000 growing at 4% a year for 20 years reaching about $208,000 in a fund charging 0.25% — and only about $179,000 in a fund charging 1.00%. That 0.75-point gap costs roughly $29,000. The fee table exists so you can spot that gap before you buy. This guide translates every line of it into plain language. See What Fees Do to Your Growth → Where the fee table lives — and the two other places fees hide Every mutual fund and ETF prospectus must carry a standardized table of fees and expenses — th...

An index fund is a fund that tries to match a published market index, not beat it. It buys the securities in that index, in roughly the proportions the index sets, and it changes its holdings mainly when the index changes. That single design choice explains most of what follows: broad exposure, low trading, and returns that track the market it follows, minus fees. What an index is, in plain terms An index is a list with rules. It names a group of securities — for example, 500 large U.S. companies — and a method for weighting them, often by market value. You cannot buy an index directly. An index fund is the vehicle that turns that list into something you can own: it holds the securities on the list so your money moves with the group, rather than with one company’s fortunes. How the fund copies the index Some funds buy every security in the index. That approach is called full replication, and it works best when the index is not too large or hard to trade. Other funds use sampling: they ...