Index Funds vs ETFs — What's the Difference and Which Should You Choose?
Index funds and ETFs are the two most popular vehicles for passive investing, and together they hold trillions of dollars in assets. The Vanguard S&P 500 ETF (VOO) alone manages over $1.5 trillion, while its mutual fund sibling VFIAX tracks the same index with slightly different mechanics. For most investors, either vehicle will deliver nearly identical returns — the S&P 500 currently trades at $685.99 via SPY with a P/E ratio of 27.62. But the differences that do exist — in trading flexibility, tax efficiency, minimum investments, and cost structure — can meaningfully impact your portfolio over decades. Understanding these distinctions helps you make a smarter choice for your specific situation. This guide breaks down exactly how index mutual funds and ETFs compare, when each makes more sense, and how to decide which vehicle best fits your investing strategy.