What is an ETF? (exchange traded fund)
An exchange traded fund (ETF) is an investment fund that invests in a basket of stocks, bonds, or other assets. ETFs are traded on a stock exchange, just like stocks. Investors are drawn to ETFs because of their low price, tax efficiency and ease of trading.
ETFs seek to provide the performance of a specified index, such as the S&P 500, and typically have low fees.
Like mutual funds, ETFs offer investors diversified exposure to a portfolio of securities, such as stocks, bonds, commodities and real estate.
Why are ETFs popular?
While investors often associate ETFs with large stock indexes, such as the S&P 500, ETFs provide access to virtually every asset class, sector, region, theme and investment style.
ETFs are popular because of their low fees, tax efficiency, liquidity and transparency. Since the first ETF was launched in 1993, the ETF industry has grown substantially, with more than $3 trillion now invested in ETFs.
What are the benefits of ETFs?
ETFs cost significantly less than comparable active mutual funds — and that savings can add up over time. Other benefits include:
Access and liquidity. Because ETFs are traded on stock exchanges, they are easily bought or sold.
Transparency. Just like mutual funds, ETFs report performance quarterly and fees daily.
Diversification. ETFs provide access to a wide range of investment options, covering a broad range of asset classes, sectors and geographies. They also make it easy to select specific themes or investment styles.
What are the risks associated
with ETFs?
Like mutual funds, ETFs carry investment risk depending on their asset class, strategy and region. Some ETFs are riskier than others.
In addition, if you invest in an ETF that holds securities in a currency other than your own, movements in the foreign exchange rate may affect your returns.
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