Mutual funds and ETFs both pool money from many investors to buy a diversified mix of assets. The key difference is how they trade: mutual funds price once daily after markets close, while ETFs trade like stocks throughout the day.

Mutual funds often have higher minimum investments and expense ratios, but some offer active management. ETFs typically have lower costs and are more tax-efficient, making them popular with beginner investors.

Both provide instant diversification, which is why they’re excellent choices for those starting out. Index fund versions of either can be particularly cost-effective ways to invest in broad market segments.