What is an ETF?
An exchange-traded fund (ETF) is a basket of securities created to track as closely as possible a particular market index, such as the Standard & Poor’s 500 Index or the Dow Jones Industrial Average. They’re similar to mutual funds in that they represent investments in the same types of securities, but they generally have lower fees and can be bought and sold with more pricing immediacy than mutual funds. They also have some clear tax advantages. Since their launch in the early 1990s on the American Stock Exchange, there are now hundreds of ETFs available for investors to buy. As the market has struggled its way back since 2000, investors have embraced ETFs as a more efficient alternative to a mutual fund invested in the same securities. A financial planner can tell you whether ETFs are right for your portfolio, but here are some details to know beforehand: How are ETFs created? An ETF is created by large institutional investors who buy stocks aligning with the shares in a particular i
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Think of an exchange-traded fund as a mutual fund that trades like a stock. Just like an index fund, an ETF represents a basket of stocks that reflect an index such as the S&P 500. (To read more on this subject, see our Index Investing tutorial.) An ETF, however, isn’t a mutual fund; it trades just like any other company on a stock exchange. Unlike a mutual fund that has its net-asset value (NAV) calculated at the end of each trading day, an ETF’s price changes throughout the day, fluctuating with supply and demand. It is important to remember that while ETFs attempt to replicate the return on indexes, there is no guarantee that they will do so exactly. It is not uncommon to see a 1% or more difference between the actual index’s year-end return and that of an ETF. By owning an ETF, you get the diversification of an index fund plus the flexibility of a stock. Because ETFs trade like stocks, you can short sell them, buy them on margin and purchase as little as one share. Another advantag
An ETF is a shorthand term for an “Exchange Traded Fund”, which is a type of investment that is based in the stock market. An ETF is an investment plan that can be traded as shares on many of the stock exchanges around the world. Generally, an ETF works to replicate a standard element within the stock exchange, such as the Standard & Poor 500 index. An Exchange Traded Fund might also try to replicate a specific market, such as the technology market or the automotive market. On the other hand, an ETF might try to model itself after a specific commodity such as oil or silver. The specific makeup of the ETF and the intricacies of the way that one works are defined differently in different parts of the world. There are, however, some universal elements of an ETF. First of all, an Exchange Traded Fund must have a listing on the stock market exchange and it must be able to trade on a ongoing basis. An ETF can also be recognized by the way that its value is assigned. The value of an ETF is di
Exchange traded funds (ETFs) are investments that represent a baskets of securities that closely track the movement of an underlying index or sector. ETFs are traded on an exchange just like a normal stock and will have a bid and offer price (selling and buying price). As you can go long (buy) or short (sell), they are a cost effective way of gaining exposure to an entire market without the need to purchase (or sell) every share in the index.
