An ETF, or Exchange-Traded Fund, is an investment fund that holds a collection of assets like stocks, bonds, or commodities and trades on an exchange like a stock. It allows investors to buy shares that represent a portion of the overall fund.
How It Works
ETFs are designed to track the performance of an index, sector, commodity, or strategy. For example, an ETF might track the S&P 500 index. Investors can buy and sell ETF shares throughout the trading day at market prices, just like stocks.
Benefits
- Diversification: ETFs hold many assets, reducing risk compared to owning a single stock.
- Liquidity: They can be bought and sold easily during market hours.
- Low cost: ETFs usually have lower management fees compared to mutual funds.
Final Thoughts
ETFs combine the diversification of mutual funds with the flexibility of stocks. They are a popular choice for both beginner and experienced investors seeking broad exposure at low cost.