What are ETFs?



Exchange-traded funds (ETFs) are a type of investment fund that holds a collection of assets, such as stocks, bonds, or commodities, and trades on an exchange like a stock. ETFs provide investors with an easy way to diversify their portfolio and gain exposure to a particular market or sector. They typically have lower expense ratios than actively managed mutual funds and can be bought and sold like individual stocks throughout the trading day.

 

Another difference is that ETFs typically have lower expense ratios than actively managed mutual funds. This is because ETFs are passively managed, meaning that they simply track the performance of a particular market or sector, rather than trying to beat it through active management. This can make them a more cost-effective option for investors.

ETFs also provide investors with more flexibility in terms of how they can invest. For example, an investor can buy an ETF that tracks the performance of the S&P 500, giving them exposure to the performance of the 500 largest companies in the United States. Or an investor can buy an ETF that tracks the performance of a specific sector such as technology, healthcare, or energy. This allows investors to easily diversify their portfolio and gain exposure to a particular market or sector.

 


Overall, ETFs are a popular choice among investors because they provide an easy way to diversify a portfolio, gain exposure to a particular market or sector, and they are more cost-effective than actively managed mutual funds.