An ETF holds a portfolio of assets and issues shares that trade on an exchange throughout the day. Many ETFs track an index of stocks or bonds, giving broad exposure in one trade. Investors like them for diversification and usually lower costs than traditional active funds, though fees, tracking error, and trading spreads still matter.
Key takeaways
- You buy and sell ETF shares through a broker, similar to ordinary stocks.
- One ETF can hold dozens or hundreds of underlying names.
- Read the holdings, expense ratio, and tracking method before investing.
- Liquidity of the ETF and of its underlying assets both affect trading quality.