When building a passive investment portfolio for early retirement, you will inevitably choose between mutual index funds and Exchange-Traded Funds (ETFs). Both track underlying indices like the S&P 500 or MSCI World, but they differ in how they are bought, sold, and taxed.
ETFs trade like stocks on exchanges throughout the day, offering price flexibility but sometimes incurring brokerage fees. Index funds, however, transact once per day at the Net Asset Value (NAV), making them ideal for automatic monthly contributions without trading costs.
Tax efficiency also plays a major role. In many jurisdictions, ETFs are structured to minimize capital gains distributions compared to mutual funds. Align your choice with your broker availability, country regulations, and investment frequency to accelerate your compounding curves.