ETF
Definition of an ETF
An Exchange-Traded Fund (ETF) is a type of investment fund and exchange-traded product, meaning they are traded on stock exchanges much like individual stocks. At the core, ETFs are designed to track the performance of specific indexes, commodities, bonds, or a mix of various asset types.
ETFs share characteristics with mutual funds in that they represent a collection and ownership of assets that investors buy shares in.
However, unlike mutual funds, ETF shares are traded throughout the day on stock exchanges at market-determined prices. This provides both flexibility and liquidity, as investors can buy or sell ETFs just like ordinary stocks.
To illustrate the advantages and the basic structure of an ETF, consider the following table:
| Feature | ETF Characteristics |
|---|---|
| Trading | Throughout the trading day |
| Pricing | Continuously at market prices |
| Minimum Investment | None; based on share price |
| Expense Ratios | Typically lower than mutual funds |
| Investment Style | Passive, tracking an index |
ETFs aim to mirror the performance of the indexes or assets they follow. This passive management approach tends to result in lower fees, making ETFs a cost-effective choice for many investors.
In our experience, they also offer transparency knowing the exact assets held in the ETF you’re looking at any given time.