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Investing

ETFs vs. Mutual Funds: Which Should You Choose?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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One of the most commonly touted “rules” of investing is to diversify your assets. That means buying different kinds of assets so you aren’t investing too heavily in one company or in one industry.

Rather than diversifying by manually buying stock shares in many different companies — each of which grants you an ownership interest in the company whose stock you buy — many people prefer to invest in either exchange-traded funds (ETFs) or mutual funds.

Both ETFs and mutual funds involve pooling your cash with the money of lots of other people. That pot of money is then used to buy a mix of different assets in order to minimize risk.

While there are similarities between ETFs and mutual funds, there are big differences in how these two kinds of investment products work. Learn more about investing in ETFs versus mutual funds below so you can make the most informed choice about which type of investment is best for your situation.

ETFs vs. mutual funds: the basics

Both ETFs and mutual funds give you exposure to multiple individual securities. But ETFs and mutual funds differ in how they’re sold, their typical fees and costs, their initial starting investment requirements, and often the way they’re managed.

ETFs are traded like stocks, and you can buy as little as one share of an exchange-traded fund. The price fluctuates throughout the day and is determined by what investors bid and what sellers are willing to sell for. There are many ETFs you could buy a share of for under $25.

Mutual funds, on the other hand, require investors to buy into the fund directly, which can happen only once per day, after the market closes. The minimum investment in a mutual fund is often much higher than the minimum investment for an ETF, and the price is determined by the net asset value (NAV), or how much assets in the mutual fund are worth minus liabilities.

While ETFs often cost less than mutual funds and can be easier to buy and sell, this isn’t the case for every ETF and every mutual fund, so it’s important to comparison shop carefully if you’re considering investing in either of these two types of financial products.

 ETFMutual fund

How it’s traded

  • Traded like stocks

  • You can buy or sell throughout the day on the secondary market


  • Traded once per day, after the market closes

  • Purchased directly from the fund


Typical costs

  • You may have to pay a fee (called a commission) to a broker to buy

  • Expenses associated with ETF ownership are often lower than for mutual funds


  • You may have to pay fees to buy into a mutual fund

  • Expenses associated with ownership could be higher


Minimum investment

  • The price of one share

  • Varies by fund but often $1,000 or more

What is an ETF?

An ETF, or exchange-traded fund, gets its name because it is traded on a stock exchange, such as the Nasdaq or the New York Stock Exchange. Anyone can buy an ETF, and you can buy as little as one share. You’ll need to have some money in a brokerage account to buy an ETF, but it’s easy to open an account with an affordable online broker.

You usually have to pay a commission to buy an ETF, just like you pay a commision to buy stock shares in a company, but some ETFs are commission-free. The commission you pay is a flat fee when you buy and sell, and it’s paid to your broker. For example, if you invest with Ally Invest, you pay a $4.95 commission to Ally when you buy shares of an ETF and pay the same $4.95 when you sell your shares.

If you have to pay a commission, you may want to wait until you’ve saved up a little bit of money to buy multiple shares. Buying just one share is possible, but you’d need to make a bigger profit to make up for the fee.

Many ETFs are passively managed, which means there’s no financial professional picking which assets the fund will invest in. Instead, ETFs usually track financial indexes, such as the S&P 500 or the Dow Jones Industrial Average.

You can buy ETFs to gain exposure to many different kinds of assets. ETFs could give you exposure to U.S. or foreign stocks as well as bonds, real estate and more. You could buy a few different ETFs to get a fully diversified portfolio, or you could use a robo-advisor to help you invest in an appropriate mix of ETFs.

When you buy even a single share of an ETF, you gain exposure to everything the ETF is invested in. If you buy an ETF that tracks the performance of the Dow Jones Industrial Average, for instance, you have a small interest in the 30 large publicly owned companies in the U.S. that create this average. If these companies perform well, your ETF should increase in value.

What is a mutual fund?

A mutual fund is a pool of money that is invested in a mix of different assets, just like an ETF. But unlike an ETF, you don’t buy shares of a mutual fund on a stock exchange. Instead, you have to buy shares directly from the fund or directly from a broker for the mutual fund.

You also can’t buy or sell shares of a mutual fund whenever you want; you can buy shares only at the end of each day. And unlike an ETF, the price isn’t determined by what investors will pay for it on the market. Instead, each day, the net asset value of the fund is determined by adding up the fund assets, subtracting liabilities and dividing this amount by the number of outstanding shares. When you purchase shares of the fund, the NAV is the price you pay.

In most cases, you’re required to invest a certain minimum amount to be able to buy into a mutual fund. Often, the minimum is at least $1,000. With some mutual funds, it is much higher. Selling your fund can take more time too. While “redeemable” mutual fund shares can be sold back to the fund at any time, funds usually have around seven days to send you back your money once you redeem your shares.

Mutual funds may charge a number of fees, which are often higher than the costs of ETFs. These fees can include management fees, which can sometimes become quite costly. The reason for these added costs is that most mutual funds are actively managed, which means someone selects investments that are made with the pooled money in the fund. The money isn’t just invested to mimic a financial index or by some other automated process.

ETF vs. mutual funds: who should invest in which?

If you’d prefer more flexibility and potentially lower fees, an ETF may be a better choice for you. But if you want a fund manager to make decisions about where your pooled money will go, you’ll have many more choices with mutual funds.

With either type of investment, it’s important that you research the performance of the fund carefully. You’ll want to know what it costs to buy and sell, the management fees you’ll pay, and how the investment has performed over time.

You may decide to invest in a mix of mutual funds and ETFs, or you may choose one over the other — just make sure you understand fully what you’re getting into and how your money will hopefully grow.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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Investing

J.P. Morgan You Invest Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Chances are you’ve heard of J.P. Morgan Chase. It’s one of the major players in the financial space, and it’s long had a brokerage arm in addition to providing global banking services. Now, though, J.P. Morgan is getting into the online brokerage space with You Invest.

You Invest is an online trading platform that allows you to buy and sell individual stocks and exchange-traded funds (ETFs) without the need for a human broker. This review will look at what’s offered and provide you with the information you need to decide if it’s right for you.

You Invest offers a way for you to seamlessly connect your Chase bank account to your brokerage account. Additionally, you end up with access to plenty of educational materials and the ability to understand your total portfolio.

J.P. Morgan You Invest
Visit J.P. MorganSecuredon J.P. Morgan You Invest’s secure site
The bottom line: You Invest offers a fairly standard online brokerage experience with the perks of low-cost trading fees and a wealth of investor education.

  • Pay just $2.95 per trade after receiving 100 free trades.
  • Enjoy a large selection of investments, including stocks, bonds, mutual funds and ETFs.
  • Manage investments according to goals with the Portfolio Builder tool.

Who should consider You Invest

You Invest is ideal for beginning investors, especially those looking for education and assistance building a portfolio that will help them reach their goals. Intermediate and advanced investors also can benefit, but the educational tools and resources are especially helpful for novice investors.

Additionally, it connects to your other Chase accounts, making it easy for you to move money from your bank account to your brokerage account and vice versa. If you already bank with Chase, using You Invest to manage your portfolio might not be a bad choice.

While $2.95 per trade is a low cost, this product might not be the best choice for active traders. For traders who can keep their trade volume low, this can be an excellent brokerage since you receive 100 free trades in the first year after an account is opened — with the opportunity to qualify for more free trades in subsequent years.

J.P. Morgan You Invest fees and features

Current promotions

Up to 100 free trades

Stock trading fees
  • $2.95 per trade
  • $0 per trade for Chase Private Client, Chase Sapphire Banking, J.P. Morgan Private Bank and J.P. Morgan Securities clients
Amount minimum to open account
  • $0
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $75 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
Ease of use
Mobile appiOS, Android
Customer supportPhone, Chat, 5,100 branch locations
Research resources
  • SEC filings
  • Mutual fund reports
  • Earnings press releases
  • Earnings call recordings

Strengths of You Invest

The educational tools and insights provided by You Invest are where this offering shines. They help you find the right mutual funds and stocks, and get you to understand your investing needs.

  • Low trading fees: To start, you get 100 free trades from You Invest. After you use your allotment, trades cost only $2.95. Among online brokers that charge trading fees, this is one of the lowest. If you’re not an active trader, you might be able to avoid paying fees fairly easily. You can get more free trades each year if you use certain Chase banking products, such as Premier Plus Checking.
  • Educational resources: You Invest offers a number of helpful articles about investing, strategy and more. It’s possible for you to learn the basics and then apply them to your portfolio.
  • Portfolio Builder: If you have at least $2,500 in your account, you can take advantage of this tool designed to help you choose the right investments for your portfolio. You’ll receive guidance on putting together a portfolio based on your answers to questions designed to gauge your risk tolerance, investment goals and time horizon.
  • Powerful screening tools: You can use these tools to set parameters and then find assets that fit your requirements. A list of options appears, and when you’re looking at Mutual funds , You Invest also includes Morningstar ratings and analysis of where they might fit into your portfolio.

Drawbacks of You Invest

A review of You Invest wouldn’t be complete without a look at some of the downsides. In many ways, You Invest is a typical online brokerage option. Other than some of the educational and portfolio building tools, there’s not a lot to distinguish this from other brokers.

  • No standalone app: Rather than offering a standalone app, you access You Invest through J.P. Morgan Mobile. Until you get used to it, it can be somewhat disconcerting to navigate to your trading app within the regular app.
  • Limited account types: There are only two account options with You Invest: taxable and IRA. You can get a Joint taxable account as well as an individual account, and there is a Roth option with the IRA. However, if you’re hoping for a custodial account or 529, you won’t find it with You Invest.
  • No managed portfolios: Right now, you won’t find managed portfolios, but they are supposed to be coming in 2019. So if you’re more of a hands-off investor, you might want to wait until there are more options available.
Fees
$2.95 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Up to 100 free trades

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Cash bonuses are available for new accounts. Bonuses start at $50 if you deposit or transfer $10,000+.

Is You Invest safe?

Any investment comes with the risk of loss. However, You Invest is insured by the SIPC for up to $500,000. Additionally, J.P. Morgan is a member of FINRA. As a result, you’re reasonably protected — especially when you consider that this is a company with more than $1 trillion in assets under management. It’s not likely to fail.

Just make sure you understand your own risk tolerance before you invest. While insurance protects you from failure, you’re not protected from market losses.

Final thoughts

You Invest can be a great option for middle-of-the-road investors who want a little more flexibility in their portfolios but still need some guidance. There are a number of assets to choose from, and the educational tools and resources allow you to build a portfolio based on your long-term goals and expectations.

Depending on your goals, there might be other products that work for you. For those more interested in a hands-off approach, Betterment might be a more suitable choice. You also can make trades for less with a service like Robinhood. However, you might not get the same level of educational tools with Robinhood, and Betterment won’t let you personalize your portfolio to the same degree.

If you want a low-cost, personalized way to invest — learning as you go — and if you’re already a Chase customer, opening a You Invest account might be a good way to move forward.

Open a J.P. Morgan You Invest accountSecured
on J.P. Morgan You Invest’s secure website

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

How to Make Money in Stocks

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Putting money in the market is well-worn financial advice for a reason: Investing in stocks is one of the best steps you can take toward building wealth.But how, exactly, is that wealth built? How is money earned by purchasing stock market holdings, and what can you do to maximize the gains you make from your own portfolio?

How to make money in stocks: 5 best practices

The way the stock market works — and works for you — is as simple as a high school economics class. It’s all about supply and demand, and the way those factors affect value.

Investors purchase market assets like stocks (shares of companies), which increase in value when the company does well. As the company in question makes financial progress, more investors want a piece of the action, and they’re willing to pay more for an individual share.

That means that the share you paid for has now increased in price, thanks to higher demand — which in turn means you can earn something when it comes time to sell it. (Of course, it’s also possible for stocks and other market holdings to decrease in value, which is why there’s no such thing as a risk-free investment.)

Along with the profit you can make by selling stocks, you can also earn shareholder dividends, or portions of the company’s earnings. Cash dividends are usually paid on a quarterly basis, but you might also earn dividends in the form of additional shares of stock.

Micro-mechanics of how stocks earn money aside, you likely won’t see serious growth without heeding some basic market principles and best practices. Here’s how to ensure your portfolio will do as much work for you as possible.

1. Take advantage of time

Although it’s possible to make money on the stock market in the short term, the real earning potential comes from the compound interest you earn on long-term holdings. As your assets increase in value, the total amount of money in your account grows, making room for even more capital gains. That’s how stock market earnings increase over time exponentially.

But in order to best take advantage of that exponential growth, you need to start building your portfolio as early as possible. Ideally, you’ll want to start investing as soon as you’re earning an income — perhaps by taking advantage of a company-sponsored 401(k) plan.

To see exactly how much time can affect your nest egg, let’s look at an example. Say you stashed $1,000 in your retirement account at age 20, with plans to hang up your working hat at age 70. Even if you put nothing else into the account, you’d have over $18,000 to look forward to after 50 years of growth, assuming a relatively modest 6% interest rate. But if you waited until you were 60 to make that initial deposit, you’d earn less than $800 through compound interest — which is why it’s so much harder to save for retirement if you don’t start early. Plus, all that extra cash comes at no additional effort on your part. It just requires time — so go ahead and get started!

2. Continue to invest regularly

Time is an important component of your overall portfolio growth. But even decades of compounding returns can only do so much if you don’t continue to save.

Let’s go back to our retirement example above. Only this time, instead of making a $1,000 deposit and forgetting about it, let’s say you contributed $1,000 a year — which comes out to less than $20 per week.

If you started making those annual contributions at age 20, you’d have saved about $325,000 by the time you celebrated your 70th birthday. Even if you waited until 60 to start saving, you’d wind up with about $15,000 — a far cry from the measly $1,800 you’d take out if you only made the initial deposit.

Making regular contributions doesn’t have to take much effort; you can easily automate the process through your 401(k) or brokerage account, depositing a set amount each week or pay period.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

500 free trades with a qualifying net deposit of $100,000

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$500
Promotion
New accounts with a deposit of at least $5,000, may be eligible for a cash bonus, which can range from $100 to $2,500 depending on the amount deposited.

3. Set it and forget it — mostly

If you’re looking to see healthy returns on your stock market investments, just remember — you’re playing the long game.

For one thing, short-term trading lacks the tax benefits you can glean from holding onto your investments for longer. If you sell a stock before owning it for a full year, you’ll pay a higher tax rate than you would on long-term capital gains — that is, stocks you’ve held for more than a year.

While there are certain situations that do call for taking a look at your holdings, for the most part, even serious market dips reverse themselves in time. In fact, these bearish blips are regular, expected events, according to Malik S. Lee, CFP® and founder of Atlanta-based Felton & Peel Wealth Management.

So-called market corrections are healthy, he said. “It shows that the market is alive and well.” And even taking major recessions into account, the market’s performance has had an overall upward trend over the past hundred years.

4. Maintain a diverse portfolio

All investing carries risk; it’s possible for some of the companies you invest in to underperform or even fold entirely. But if you diversify your portfolio, you’ll be safeguarded against losing all of your assets when investments don’t go as planned.

By ensuring you’re invested in many different types of securities, you’ll be better prepared to weather stock market corrections. It’s unlikely that all industries and companies will suffer equally or succeed at the same level, so you can hedge your bets by buying some of everything.

5. Consider hiring professional help

Although the internet makes it relatively easy to create a well-researched DIY stock portfolio, if you’re still hesitant to put your money in the market, hiring an investment advisor can help. Even though the use of a professional can’t mitigate all risk of losses, you might feel more comfortable knowing you have an expert in your corner.

How the stock market can grow your wealth

Given the right combination of time, contribution regularity and a little bit of luck, the stock market has the potential to turn even a modest savings into an appreciable nest egg.

Ready to get started investing for yourself? Check out the following MagnifyMoney articles:

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here