Both ETFs and mutual funds have an expense ratio, which includes management fees and the fund’s total annual operating expenses. Historically, index ETFs have had a lower average expense ratio—0.46%,1 while index mutual funds have had a higher average expense ratio—0.64%.1 Individual stocks do not have an expense ratio.
Because ETFs and individual stocks are bought and sold on an exchange, they are both subject to a transaction fee (or commission). Mutual fund transactions do not incur commissions, but may incur other sales charges.
It’s important to consider the total cost of ownership (TCO) for any investment, both the expense ratio and the trading costs. ETFs now trade commission-free on many platforms, which can lower the total cost of owning an ETF.
You can find out more about TCO here.