While being able to trade ETFs throughout the day makes them more flexible, it’s never a good idea to try time the market – that’s something even the experts tend to avoid. They can still track an underlying index, but the price of ETFs will fluctuate through the trading day. Unlike ETFs, investors won’t know exactly what price they’re buying or selling for until after the trade’s taken place.ĮTFs on the other hand are funds traded on a stock exchange, like shares, and are a type of Exchange Traded Product. Index funds only value and trade once a day, usually at midday.
When you buy or sell an index fund, the price is based on the total value of all securities held within the fund, also known as the net asset value (NAV). However, there are nuances that separate them.
What exactly are index funds and ETFs?īoth are typically passive investments that let investors access stock markets by tracking an underlying index, like the FTSE 100. Investments rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment is right for you, ask for financial advice. To help shine some light on passive investing, we’ve highlighted some differences between index funds and ETFs. While passive investments might seem quite similar, they can be very different.
Passive investing continues to become more popular, and the number of funds available to investors has exploded.