Exchange-Traded Funds
An ETF is a type of investment fund that holds a collection of assets, such as stocks, bonds, or commodities. These funds are traded on stock exchanges, like individual stocks.
How ETFs Work
- Exchange-Traded:
ETFs can be bought and sold throughout the trading day at market prices, unlike mutual funds which only trade once a day at the net asset value (NAV)
- Most ETFs are passively managed, meaning they aim to replicate the performance of a specific index, such as the S&P 500.
Types
- Stock ETFs:
These track a specific index or sector of stocks.
- Bond ETFs:
These invest in various types of bonds and aim to provide regular income.
- Commodity ETFs:
These track the price of commodities like gold or oil.
- Sector and Industry ETFs:
These focus on specific sectors, such as technology or healthcare.
- International ETFs:
These invest in assets from markets outside the investor’s home country
Benefits
- Diversification:
By investing in an ETF, you gain exposure to a wide range of assets, which helps spread risk
- Cost Efficiency:
ETFs generally have lower expense ratios compared to mutual funds
- Liquidity:
ETFs can be easily bought and sold on the stock exchange, providing flexibility and ease of access
- Transparency:
ETFs disclose their holdings daily, so you always know what assets you own.