ETF (Exchange-Traded Fund)
A type of investment fund that trades on stock exchanges like individual stocks. ETFs typically track an index, sector, commodity, or other asset class and offer diversification with low expense ratios.
An Exchange-Traded Fund (ETF) is a basket of securities that trades on an exchange throughout the day at market-determined prices. ETFs have revolutionized investing by providing low-cost, transparent, and tax-efficient access to virtually every asset class and strategy imaginable.
Key Advantages
- Low costs — Many broad market ETFs charge expense ratios under 0.10%
- Tax efficiency — The in-kind creation/redemption process minimizes capital gains distributions
- Liquidity — Can be bought and sold at any time during market hours
- Transparency — Holdings are disclosed daily
ETFs come in many varieties: broad market index ETFs, sector ETFs, bond ETFs, commodity ETFs, and even actively managed ETFs. When comparing ETFs, pay close attention to the expense ratio, tracking error, and bid-ask spread. For a thorough introduction, read our complete guide to ETFs.