What is an exchange-traded fund, or ETF?

An exchange-traded fund (ETF) is a type of investment that allows you to buy a collection of stocks or bonds in a single purchase. It’s like a basket of investments that you can buy all at once.

When you buy an ETF, you are essentially buying a share of a fund that holds a bunch of different investments, like stocks or bonds. The value of your ETF share will go up or down depending on the performance of the underlying investments.

One advantage of ETFs is that they offer diversification, which means that you are spreading your money across many different investments. This can help to reduce your overall risk, because if one investment does poorly, it won’t necessarily have a big impact on your entire investment.

ETFs are traded on stock exchanges, which means you can buy and sell them throughout the trading day, just like you would with a stock. Because they are traded on exchanges, they can be bought and sold at any time during market hours, making them a flexible investment option.

ETFs can be a good choice for investors who want to invest in the stock market but don’t have a lot of money to start with. They are also a good option for those who prefer a more passive investment strategy, as ETFs generally have lower fees than actively managed mutual funds. However, like any investment, ETFs do come with risks, so it’s important to do your own research and assess the risks before investing.

This page was last updated on March 31, 2023.

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