What is an ETF?

An ETF, or exchange-traded fund, is a basket of investments that trades on a stock exchange like a single stock. Most ETFs track an index, which makes them an easy way to diversify at low cost.

Section 01

How ETFs work

When you buy an ETF share, you own a slice of everything in the fund. An S&P 500 ETF, for example, holds a proportional piece of all 500 companies in the index.

Section 02

ETF vs mutual fund

  • ETFs trade throughout the day like stocks.
  • Most ETFs are passively managed and have low fees.
  • Mutual funds may have minimums and end-of-day pricing.
Section 03

FAQ

Are ETFs safe?

They are as safe as the assets they hold. A stock ETF can still fall in value.

Do ETFs pay dividends?

Key takeaway

Many do. Dividends are usually reinvested automatically or paid to your account depending on the broker.

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Investing for beginners: accounts, assets, and risk

Before selecting an investment, identify the goal, time horizon, need for liquidity, and ability to tolerate losses. A brokerage account can hold cash, stocks, bonds, mutual funds, exchange-traded funds, and other permitted assets. The account type affects taxes and access, while the investments determine much of the risk and potential return. Fees, trading costs, fund expenses, and taxes can reduce results.

A stock represents an ownership interest in a company, while a bond generally represents money lent to an issuer. An index fund seeks to track a specified market index rather than selecting securities to outperform it. Mutual fund vs ETF differences can include trading method, pricing, minimums, and tax characteristics. Diversification spreads exposure but cannot eliminate loss. REITs provide real estate exposure with market, property, interest-rate, management, and liquidity risks.

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