The popularity of exchange-traded funds often triumphs over old-school mutual funds among social media-savvy investors. But experts say they both have their place in the financial system.
The investment decision between the two boils down to your financial goals, risk tolerance and time horizon, said Tony Salgado, president and founder of AMS Wealth.
"The real question becomes: What is the financial planning objective?" he said.
ETFs generally carry lower costs and are easier to trade for many investors, Salgado said. Robo-advisers with automatic investing features have become popular among younger investors, which has contributed to the boom in ETFs.
Meanwhile, mutual funds are professionally managed portfolios and tend to carry higher relative fees.
In recent years, money has poured into ETFs, while investments in mutual funds have cooled off.
Data from the Investment Funds Institute of Canada shows mutual fund net sales totalled $15.2 billion in 2024, the first year of positive net sales since 2021. ETF net sales totalled $75 billion in 2024, the highest total recorded and more than the previous two years combined.
But there's value in both, said Matthew Ardrey, senior financial planner at TriDelta Private Wealth.
"It's about finding what is the right solution for the client and what are they looking for," Ardrey said.
If an investor has a $100,000 portfolio, Ardrey said ETFs will probably work better 鈥� providing broad-based diversification and lower costs. As wealth grows, investors can start diversifying their investment strategy and expand into actively managed mutual funds or other financial products.
"It's not to say that the ETFs go out the door, but this is where you can use things that are in a more actively managed structure," Ardrey said. Some ETFs are also actively managed and can still be cost-effective.
"Often, I'll use a combination of fund managers and ETFs to try to get the client increased yield but also good diversification," he said.
However, Salgado said, an ETF can potentially harm an investor if market volatility scares them.
"Just because it comes with low cost doesn't mean it's going to grow in value," Salgado said.
For instance, a young investor has a lot of years ahead of them to invest and the money isn't needed in the short term, they could lean toward an equity ETF, Salgado said. But an older investor who wants to protect every dollar they've earned while maybe having more fulsome financial planning might opt for a mutual fund or find a more conservative approach, he added.
Ardrey said whichever way investors decide to go, they should first take the time and understand what exactly they're investing in and the costs of each product. It can't just be because they heard it was a good idea.
"One of the biggest differences between an ETF and a mutual fund is how they are traded," he said.
ETFs trade constantly throughout the day like a stock, while a mutual fund settles at a price at the end of the day. If markets are very volatile, two identical strategies could be traded at very different prices, he said.
"Investors should take the time to look under the hood of what they are buying," Ardrey said.
This report by The Canadian Press was first published July 8, 2025.
Ritika Dubey, The Canadian Press
