etf vs index fund: what is the difference? which one is for me?

The primary difference between ETFs and Index Funds is how they are bought and sold. However there are still a few others!

Fees and expenses

Because ETFs are bought and sold on an exchange, you may be subject to commission fees from your broker each time you make a trade.

Minimum investments

You can invest in an ETF in as little as one share whereas Index Funds usually have a minimum initial investment amount to invest which could be up to as much 2-3K.

Tax differences

When it comes to tax efficiency, ETFs have the edge, unlike index funds, ETFs rarely buy or sell stock for cash. When an investor wants to redeem shares, they simply sell them on the stock market.

When an index fund investor wants to redeem an investment, the index fund may have to sell stocks it owns for cash to pay the investor for the shares which may not be as quick.

Liquidity

ETFs are bought and sold like stocks, meaning you can buy or sell them anytime the stock market is open.

Index fund transactions are cleared at the end of the trading day and after the market closes. So if you put in an order to sell shares of an index fund at noon, the transaction will actually take place later at a price equal to the value of the fund at the time of market close which could be different to the price it was when you sold.

How Do I Choose Which To Buy?

If you still can't decide between an ETF and an index fund, the expense ratio could be a tiebreaker.

The expense ratio is the percent of your investment that a fund charges each year to manage your invested money.

Another deciding factor could be the type of investor you are, if you are more of an active trader versus a passive investor, the ease of selling and releasing cash could make an impact to which you buy.