Index Funds vs. ETFs vs. Individual Stocks: Which Should You Choose?
1. Index Funds: The “Set It and Forget It” Option What they are: Index funds are mutual funds designed to mimic the performance of a specific market index, like the S&P 500 or the Nasdaq-100. Instead of trying to "beat the market," they aim to be the market. Pros: Diversification: One purchase gets you exposure to hundreds of companies. Low Fees: Passive management = low expense ratios. Good for long-term investing: Ideal for retirement accounts (401(k), IRA). Cons: Not traded in real-time: Priced once per day after the market closes. Less flexible: You can’t place limit orders or trade throughout the day. 2. ETFs: The Flexible Middle Ground What they are: ETFs are similar to index funds but trade on the stock exchange like regular stocks. They can track indexes, sectors, commodities, or even specific strategies. Pros: Real-time trading: Buy and sell throughout the day. Tax-efficient: Usually more tax-friendly than mutual funds. Low-cos...