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A mutual fund is an investing instrument that buys a pool of various stocks, bonds, etc. Traditionally, mutual funds are managed actively by investing experts to maximize return. Many mutual funds specialize in certain types of investment. For example, a mutual fund might invest solely in large cap stocks.
Mutual funds are very useful for investors who plan to make a series of investments rather than a single lump-sum investment because there is not a commission charged on the deposits. - An ETF trades on a stock exchange, much like a traditional stock. Unlike a stock, which is representative of a share in a single company, an ETF represents a fractional ownership in a pool of assets, such as stocks, bonds, etc. The largest and most common ETFs seek to mirror the performance of major stock indexes by owning shares of stock in the same weight as they are given by the relevant index. For example, an ETF that seeks to mirror the S&P 500 will own shares in the same proportion as the weight that the stocks are given on the S&P 500 index. This is an easy way to get broad exposure to markets rather than specific stocks. ETFs are bought like stocks, so there is a commission each time an additional deposit is made. Therefore, they are better suited to single, lump-sum deposits.
- CDs are deposits at a bank that are not accessible for some pre-determined amount of time. The longer the time period that you do not have access to the money, generally, the higher interest rate you receive. CDs up to $250,000 are generally insured by the government in case the bank closes; so, CDs are very safe. However, with this very low risk, the returns from CDs are generally lower than those from investments in stocks or bonds.
