An exchange-traded fund holds a basket of stocks, bonds, or other assets and trades on an exchange throughout the day, just like an individual stock. One purchase can give you instant diversification across hundreds of holdings.
ETFs tend to be low-cost because most track an index rather than paying managers to pick securities. Expense ratios of a few basis points are common, and because they trade like stocks, you can buy or sell at any time during market hours.
The variety is enormous: broad-market funds, sector funds, bond funds, and even funds targeting specific themes or strategies. That flexibility makes ETFs a practical starting point for most new investors.
Key takeaways
- An ETF is a diversified basket that trades like a stock
- Index-tracking funds keep costs very low
- Buy and sell anytime during market hours
