Actively Managed ETF or Mutual Fund?

The actively managed ETF is a type of investment that is very similar to a mutual fund. Both of these types of investments can provide you with important advantages as an investor. For many years, investors researching the difference between ETF's and mutual funds focused on passive versus active management. If you wanted to take advantage of active management, you had to purchase a mutual fund. If you liked passive management, you could put your money into an ETF. However, in recent years, actively managed ETF's have emerged. This means that investors that prefer active management now have two options in the market.

Mutual Funds

Mutual funds are a type of investment that most people are familiar with. With a mutual fund, you will give your money to a fund manager and they will use it to purchase many different securities. In this way, mutual funds can be actively managed or passively managed portfolios. 

Considerations of Actively Managed ETF's

One of the big advantages of getting involved with an actively managed ETF is that you will have an investment with superior liquidity. The term ETF stands for exchange traded fund. This means that you are going to be able to trade your shares anytime that the stock market is open. This is a big advantage when compared to mutual funds. With mutual funds, you have to put in your order with your broker and then wait until the end of the trading day to have it processed. You are not even going to know how much the shares are going to cost until the end of the trading day. With an ETF, you can buy and sell shares in real-time just like you would a stock.

Another advantage of ETF's is that they tend to have lower operating expenses. When you invest in an actively managed ETF, it is going to have a larger expense ratio than a passively managed ETF. However, it will still usually be a little bit lower than most mutual funds.

Considerations of Mutual Funds

When you invest in mutual funds, there are several things that you will need to consider. One of the big advantages of putting your money into a mutual fund is that you will be able to see a track record before you get started. Many mutual funds have been around for several years. They can show you their performance over the long-term and have a verifiable track record. Most actively managed ETF's have not been around for a long period of time and you will have to take a leap of faith when you invest. ETFs were used in the 90's and remained popular because of their returns. It is important to keep your portfolio diverse to absorb any losses of any market.

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