Unlike mutual funds, ETFs do not have restrictions on frequent trading, which is beneficial when conducting specific portfolio reconstruction, especially if one were to execute something like a tax loss harvesting scheme to swap around holdings over a short period.
Mutual funds typically come with a minimum investment dollar amount. ETFs, though, don’t come with minimums. ETF investors would only need to pay as much as it costs to invest in one single share of an ETF. However, ETF investors would still need to pay brokerage fees on each ETF trade, but there are some platforms that are offering zero cost or commission-free trading on specific ETFs.
“Because ETFs and mutual funds are more similar than different, focusing on your investment objective, flexibility needs and the total cost differences of either vehicle, can help you make an educated decision,” according to Vanguard.
For more information on ETFs, visit our ETF 101 category.