New Investors: ETFs, Index Funds, and Mutual Funds. What's the difference? And which one is best for my portfolio?

What are ETFs, Index Funds, and Mutual Funds?

      This will be easy to understand. ETFs, Index Funds, and Mutual Funds are all essentially the same but with different perks. So let's start with the basics. As the saying goes, "Don't put all of your eggs into one basket.",with this analogy, we begin to understand the purpose of these funds.

Types of Funds

Index Funds and Mutual Funds:

       A mutual funds, and a index funds are one entity that is traded on the market. They are like mini portfolios or sub-portfolios that are investing into a group of stocks. In example: If you hired someone to go to the shoe store and bring back 5 pairs of shoes for you to wear, that would be the start of an index or mutual fund. The difference between the two funds are as the example continues:          

       If I hired that person because he follows the up an coming fashion trends and actively swaps out the 5 shoes to keep up with the next hottest shoes, than you can say he is trying to stay ahead of the fashion trend, I would consider that a mutual fund. Mutual funds are actively managed and designed to "stay ahead of the market".

                      Side Note: Different mutual funds would be like if that person brought you back 5 of the                                         hottest designer brand shoes, verses him bringing back the hottest pair in                                               sports, or fitness, or professional, and then there are mutual funds that will                                             bring you back one pair of each

      With this same example, if that person I hired was a construction worker during the day and brought back practical shoes that would be fitting to his job, and if I only hired him because I could use his taste in practical shoes for that field, that be like an index fund.

       -Mutual Funds: Sub portfolio beat the market, More active, Higher annual fees, More                                                    aggressive.

       -Index Funds: Sub portfolio practical, Less active, Lower annual fees, Less aggressive.

ETFs:

         An ETF (Exchange Traded Fund) is exactly the same as a mutual fund or an index fund. They are created to mimic them, move for move. The joy of ETFs are that they are much cheaper to purchase, and you can trade them multiple times a day. They have their own advantage when used properly. Mutual funds and index funds are only traded once a day after the market closes.