An Exchange Traded Fund, or ETF is a type of investment vehicle that provides investors with diversification. They hold a basket of securities, have a stated investment objective, can be both active or passive, and trade on an exchange under a single stock symbol. Passive ETFs generally track a specific index, such as the S&P 500, or they can be actively managed with a more targeted investment goal. They can provide exposure to specific areas of the market, such as technology, or specific regions in the world, such as Europe. This can be beneficial for investors who want targeted exposure to a specific area of the market. They also allow investors access to diversification with smaller amounts of money, compared to a portfolio built of individual stock or bond positions, which can require high minimum account balances.
There are many types of ETFs available for investors, such as stock ETFs, bond ETFs, commodity ETFs, currency ETFs and more.
They are traded throughout the day at various prices on an exchange, just like stocks, which allows investors to quickly respond to market conditions. They are also considered tax efficient and tend to have low fees. It’s important to carefully review an ETF and understand the investment strategy before investing.