ETFs vs. Mutual Funds vs. Individual Stocks: Why I'm Putting More Into ETFs in 2027

I remember when the first exchange-traded fund (ETF) was introduced. The company I worked for at the time was quick to see the benefits the unique structure offered, and created indexes for early ETFs to follow. At this point, you could easily use ETFs to satisfy all of your investing needs. But that's not how I plan to use ETFs in 2027. Here's why I still own mutual funds and stocks, but also why ETFs will be an important part of my future investment plans.

At its core, an exchange-traded fund is just a pooled investment vehicle. In that sense, they are very similar to mutual funds. Both products let investors pool their money together so they can hire professional management to invest on their behalf. If you have a regular life of any kind outside of Wall Street, ETFs and mutual funds could be the perfect solution to your investment needs.

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Essentially, mutual funds and ETFs let you focus on working, enjoying time with your family and friends, and saving money. The ETFs and mutual funds you pick handle the investing for you, with you only needing to keep tabs on what's going on a few times a year (quarterly will probably be enough in most cases). That's a win, even for more active investors like me (more on this below).

The big differences between mutual funds and ETFs boil down to cost and trading ability. Mutual funds tend to have higher expense ratios and often generate more capital gains that have to be passed on to investors. Also, they can only be bought and sold at the end of the trading day, which might be a good thing for some people, as it could stop them from making rash intra-day decisions.

It is a bit complex, and the fine details aren't that important, but an ETF's structure allows for extremely low costs, minimal capital gains distributions, and all-day trading, like a stock. So if you are looking at an index product with a mutual fund or ETF option, you'll likely find the ETF option is less expensive. For example, Vanguard S&P 500 ETF (NYSEMKT: VOO) has an expense ratio of 0.03%. But the Vanguard 500 Mutual Fund has an expense ratio of 0.04%. That's a tiny difference in absolute terms for an S&P 500 fund , but on a percentage basis, the mutual fund is roughly 33% more expensive to own. If you are looking to outsource your investing, ETFs are usually a good option.