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I’m a brand new investor. So far I have a small amount of money in the SWPPX fund but I am also learning that ETFs also have their own benefits and drawbacks, so I wondering is it beneficial to have one of both types of funds or just have one type?

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Investing in an ETF and a mutual fund does not offer any diversification benefit in itself. They both work the same in principal - they consist of a multitude of stocks (sometimes bonds and derivatives, depending on the type) to reduce overall risk. The differences to you are purely mechanical - ETFs trade during the day, generally have lower fees (but mostly because they are usually passive ETFs that track an index, and generally have lower initial investment requirements.

So if you had an ETF and a mutual fund that consisted of exactly the same stocks, there would be no difference to you from a risk or return standpoint. You can invest in one or the other or both. The main goal to mix different styles and strategies to gain the benefits of diversification.

  • Okay that makes sense, one more small question, would 2 funds of either type offer enough diversification provides that both funds have different companies within them? – Connor Dec 20 '18 at 15:29
  • It depends on the correlations of the stocks within them. If they both consist of tech stocks, just different companies, then there may not be much diversification benefit. Some brokers offer tools that let you see the correlation between any two funds. – D Stanley Dec 20 '18 at 15:32
  • @Connor, research three fund portfolio on bogleheads. Choosing 3 types of funds allows diversification. Once you pick three types of funds that give you the diversification and exposure that you want, you can choose whether to buy them as index mutual funds, or ETFs. The first criterion is availability. If only one is available, there's no real choice. Next comes fees. If the index fund has a reasonable load, ETFs will probably have more fees, since they're purchased as stocks and there can be a transaction fee. If you're purchasing inside a tax advantaged portfolio, there may be no fees. – Xalorous Dec 21 '18 at 12:42

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