An exchange-traded funds (ETF) is a type of investment fund that provides the diversification of a mutual fund and ca be be traded on an exchange like a stock. It can be bought and sold throughout the trading day. It is a way to buy and sell a basket of securities without having to buy all the components individually. An ETF can contain all type of investments including stocks, commodities, or bonds. It offers low expense ratio and fewer broker commission than buying the stocks individually.
An ETF’s provider owns the underlying assets, designs a fund to track their performance and then sells shares in that fund to investors. Shareholders own a portion of an ETF but don’t own the underlying assets in the fund. An ETF is trade at market-determined prices that usually differ from that asset.
Listed below are some of the popular Market ETFs on the market today.
- SPDR S&P 500 (SPV): An ETF that tracks the S&P 500 index.
- iShares Russell 2000 (IVM): An ETF that tracks the Russell 2000 small-cap index.
- Invesco QQQ (QQ): An ETF that tracks the Nasdaq 100.
- SPDR Dow Jones Industrial Average (DIA): An ETF that tracks the 30 stocks that belong on the Dow Jones Industrial Average.
Besides Market ETFs, these are the other types of ETFs: Bond ETFs, Sector and Industry ETFs, Commodity ETFs, Style ETFs, Foreign market ETFs, Inverse ETFs, Actively managed ETFs, Exchange-traded notes, Alternative investment ETFs.
An ETF is more tax-efficient than a mutual fund since most buying and selling occurs through an exchange.
Exchange-traded funds are one of the most important and valuable products created for individual investors in recent years. ETFs offer many benefits and are excellent vehicles to achieve investors’ investment goals.