What’s an ETF?

Exchange-Traded Fund (ETF) combines the ease of stock trading with the diversification of mutual funds. 

ETFs are referred to as “funds” due to their similarities to mutual funds. However, ETFs are traded on the stock exchange. Unlike a stock, which focuses on one company, an ETF has a wider range of focus. An ETF is a fund or security comprised of a collection of other securities such as stocks and bonds. It is constructed similar to mutual fund, but is traded on the stock exchange. An ETF often tracks indexes and is able to trade throughout the day unlike mutual funds which trade once per day. An ETF has an associated price that allows the purchase and redemption of shares to occur easily.

ETFs are also known for being low-cost investment options. ETFs can be comprised of hundreds or thousands of stocks and bonds. To obtain that type of diversity, an investor would incur a large number of trading transaction costs and be forced to meet some high minimum purchase requirements in a lot of cases. ETFs can be utilized as a way to obtain that diversity at a low cost. ETFs are less expensive than mutual funds because they do not charge 12b-1 fees or commissions. Therefore, fewer operational expenses lead to reduced expense ratios for the investor.

 

 

 

NEXT UP The impact of high fees on savings How much can I contribute to my plan? What’s an ETF? Why Asset Allocation Matters Everything you Need to Know about Icon’s Fees What investments are available through Icon? Why do I need to answer a suitability questionnaire My employer is offering Icon. How does it work? Employer matching contributions–Don’t leave anything behind! Auto-escalation–A great idea The impact of high fees on savings How much can I contribute to my plan? Find out why it’s important to review your statement Save early and often What’s an ETF? High fees can erode your savings Annuities–What you need to know The basics of stocks and bonds Why Asset Allocation Matters The Savers Tax Credit – Are you taking advantage of it? What is a health savings account? A close look at Social Security Student loans feel like a weight When can I use my savings in retirement ? Emergency Savings Plan – What’s your plan? Do you receive a Form 1099? What you need to know Paying taxes as an independent contractor What if I want to take money out before I retire? What happens if I get fired or laid off? Naming a beneficiary What do I do with my 401(k) when I change jobs? Thinking of consolidating old 401(k) plans? Reserve mortgages, how do they work? Disability insurance, a great safety net Why it’s a good idea to have a will Using your home equity–Things to consider A close look at Social Security Student loans feel like a weight Emergency Savings Plan – What’s your plan? What if I want to take money out before I retire? What if I want to take money out before I retire? What if I want to take money out before I retire? What if I want to take money out before I retire? What if I want to take money out before I retire?