What is the primary advantage of investing in an ETF compared to a mutual fund?

Investing in an ETF (Exchange-Traded Fund) typically offers lower management fees compared to mutual funds, and this is a primary advantage that attracts many investors. ETFs usually have lower expense ratios because they are passively managed and do not require the same level of oversight and active management that mutual funds often do. This can lead to cost savings for investors over time, making it more efficient for those looking to maximize their returns while minimizing costs.

While the potential for guaranteed returns and higher dividends might sound appealing, ETFs do not guarantee returns, and dividend payout rates can vary widely based on the specific investments held within the fund. Furthermore, the notion of a more complex investment strategy is not an advantage; rather, ETFs are often designed to track an index and provide exposure to a broad market or sector, making them generally more accessible for individual investors compared to the often more complicated strategies employed by certain mutual funds. Thus, the lower management fees are crucial for understanding why many investors favor ETFs over mutual funds.