Exchange-Traded Fund (ETF): An ETF is a type of investment fund whose shares are traded on exchanges similar to regular stocks. An ETF represents a basket of various assets, such as stocks, bonds, commodities, or other securities. Each ETF may contain several different assets, allowing investors to diversify their investments by buying a single unit of the fund.
Key Characteristics of ETFs:
Diversification: By purchasing one ETF share, an investor gains access to a portfolio of assets, reducing risk compared to buying individual stocks or bonds.
Liquidity: ETFs are traded on exchanges throughout the trading day, and their price changes in real-time based on supply and demand, similar to regular stocks.
Transparency: The composition of an ETF is usually public and updated daily, allowing investors to know exactly what is in the fund.
Low Costs: Generally, ETFs have lower fees compared to traditional mutual funds because they are passively managed and track a specific index or sector.
Accessibility: Investors can buy and sell ETFs just like stocks, making them accessible to a wide range of market participants.
Examples of Popular ETFs:
SPDR S&P 500 ETF (SPY): Tracks the S&P 500 index, representing 500 of the largest U.S. companies.
Vanguard Total Stock Market ETF (VTI): Tracks an index covering the entire U.S. stock market.
iShares MSCI Emerging Markets ETF (EEM): Tracks an index of emerging market stocks.
