[Episode 8] What is the difference between mutual funds and ETFs? Two investments that 'look similar but are different' that beginners should know first
Hello.
I am Mayuri Teresa.
♪ There is a music gift at the end 🎁
Last time,
we talked about how ‘just because it is NISA does not mean it is safe.’
NISA is just a system.
What is important is
what you choose
within that system.
So, the next thing beginners often get confused about is
‘What is the difference between a mutual fund and an ETF?’
that is the question.
Just hearing the names makes it sound difficult, right?
But it is okay.
Today, I will try to organize it as simply as possible.
■ First, what they have in common
Both mutual funds and ETFs are mechanisms that
allow you to invest in many companies or assets at once.
For example, if you try to buy stocks of dozens of companies one by one yourself, it costs money and effort.
But with mutual funds or ETFs,
by holding just one product,
you can invest in dozens, hundreds, or in some cases, thousands of companies in a diversified way.
In other words,
‘A single basket containing various companies’
is the image.
■ What is a mutual fund?
A mutual fund is a financial product that pools money collected from investors to manage it.
For example,
there are ‘mutual funds that invest in representative US companies’
and ‘mutual funds that invest in stocks around the world.’
One of the features is
that it is easy to accumulate from a small amount.
It is also easy to set up automatic monthly contributions of a fixed amount,
so it is an easy-to-understand mechanism for beginners who want to
‘continue steadily every month.’
Also, unlike stocks, the price does not usually move throughout trading hours, and you do not buy or sell them at every moment.
■ What is an ETF?
ETF stands for
Exchange Traded Fund
, and in Japanese, it is called a ‘listed investment trust’.
As the name suggests, it is an
investment trust listed on a stock exchange
.
This is a major difference.
Like stocks, ETFs can be bought and sold while checking the price during market hours.
For example, you can place an order while watching the timing yourself, such as saying,
‘I want to buy when it reaches this price.’
■ So, what is the biggest difference?
For beginners, to put it quite simply,
Investment Trusts
→ Easy to accumulate steadily,
ETFs
→ Easy to buy and sell yourself like stocks.
There is this difference.
Of course, the contents and fees differ depending on each product.
Therefore, it is important not to jump to conclusions like
‘It’s good because it’s an ETF’ or ‘It’s safe because it’s an investment trust’.
■ Even if you invest in the same index, the products are different
This is also a point where beginners often get confused.
For example, even if you just say
‘a product that invests in the S&P 500’,
there are both investment trusts and ETFs.
Even if the contents are similar,
there are cases where the buying method, costs, and handling of dividends differ.
Therefore, instead of just looking at the product name, it is important to look at
‘What does this product invest in?’
■ Don’t buy because it’s ‘popular’, look at the contents
When looking at social media, I sometimes see posts saying
‘You’re good to go if you buy this’
or ‘This is the only choice for beginners’.
But I want you to value
understanding the contents before that.
For example,
-
What countries are you investing in?
-
What companies are included?
-
Stocks only?
-
Are bonds included too?
-
What index is it linked to?
-
How much are the fees?
Check these things little by little.
You don’t need to understand everything perfectly.
But, do not end up in a state where
you don’t know what you own
.
I think this is very important.
■ Let’s ask an AI investment tutor
AI is useful here too.
For example, enter the product name and ask,
‘What does this investment trust (or ETF) invest in? Please explain it so that an investment beginner can understand.’
Then, continue by asking,
‘Please explain the features, merits, and points of caution for this product, three of each.’
And then follow up with,
‘Compared to products with similar objectives, what is different?’.
Just doing this will deepen your understanding significantly.
What is important is,
Before asking an AI ‘Should I buy this?’, ask ‘What is this?’.
I believe this is a very good way for beginners to use AI.
■ There is no ‘which one is the correct answer’
Mutual funds and ETFs.
You don’t need to decide which one is superior.
What’s important is
whether it fits your goals and investment style.
People who want to invest automatically every month.
People who want to buy and sell while watching the price themselves.
People who want to manage their investments for a long time without touching them much.
People who prioritize dividends or distributions.
The way to choose varies from person to person.
■ Look at the “contents,” not the “name” of the investment
NISA.
Mutual funds.
ETFs.
S&P 500.
When unfamiliar terms appear one after another,
it might feel difficult.
But if you understand them one by one,
they aren’t actually that scary.
What I want to tell beginners most is:
don’t buy financial products you don’t understand just based on the vibe.
And now, if you come across a word you don’t understand,
you have an AI tutor.
It won’t get angry no matter how many times you ask (laughs).
“Explain it more simply,”
“Use concrete examples,”
“Make it understandable for a middle schooler,”
you can ask as many times as you like.
■ Let’s increase what you “understand yourself” little by little
What’s important in investing
is not to be perfect from the start.
Today,
you understood the difference between mutual funds and ETFs a little bit.
That alone is enough.
As those “understandings” accumulate,
you will be able to make decisions on your own little by little.
Instead of having AI decide the answer for you,
learning with AI while becoming able to choose for yourself.
This is what I consider
AI investment education.
Learn with AI.
Grow your future money.
When looking at social media, I often felt impatient or depressed, and I had those feelings many times too.
But it’s okay. If you move forward even one step at a time, things will definitely change.
Just as it was for me.
I hope this note becomes a trigger for you to “enjoy life once again.”
Following and clicking “Like” would be a huge encouragement
✦･･･━━━━━━━━━･･･✦
Click here for other information
I have also started an email newsletter.
Delivered every Wednesday at 8:00 PM.
“AI Investment Tutor Newsletter”
“Learn with AI. Grow your future money.”
Official LINE for investment beginners
When your brain is tired from investing,
please get some quality sleep☆
A song I want you to listen to on such a night
LUCID DREAM
Composed by Mayuri & AI Rutile
Good night