Exchange-Traded Funds (2024)

FAQs

What is an exchange-traded fund quizlet? ›

An exchange-traded fund is an investment vehicle that combines some features from mutual funds and some from individual stocks. They are typically structured as open-end mutual fund trusts.

ETFs or "exchange-traded funds" are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio.

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

Key Takeaways

An exchange-traded fund (ETF) is a basket of securities that trades on an exchange just like a stock does. ETF share prices fluctuate all day as the ETF is bought and sold; this is different from mutual funds, which only trade once a day after the market closes.

Certain ETFs combine style with the size or market capitalization (large-cap, mid-cap, and small-cap). Examples include Schwab U.S. Large-Cap Value ETF (SCHV), Vanguard Small-Cap ETF (VB), and Vanguard Small-Cap Growth ETF (VBK).

An exchange-traded fund (ETF) is a basket of securities you buy or sell through a brokerage firm on a stock exchange.

Exchange funds pool large amounts of concentrated shareholders of different companies into a single investment pool. The purpose is to allow large shareholders in a single corporation to exchange their concentrated holding in exchange for a share in the pool's more diversified portfolio.

ETFs can offer lower operating costs than traditional open-end funds, flexible trading, greater transparency, and better tax efficiency in taxable accounts. For nearly a century, traditional mutual funds have offered many advantages over building a portfolio one security at a time.

Key Data Points. When it comes to safe investments, the iShares 0-3 Month Treasury Bond ETF is the next safest thing to simply holding cash in your portfolio. The index fund invests in a portfolio of Treasury securities with maturity dates of three months or less.

The key principles of a lazy portfolio are diversification, low fees, and patience. Instead of actively building and managing a portfolio, you invest in a handful of low-cost index funds and hold onto them for the long term.

Should I put all my money in ETFs? ›

You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.

Holding an ETF for longer than a year may get you a more favorable capital gains tax rate when you sell your investment.

Exchange funds pool large amounts of concentrated shareholders of different companies into a single investment pool. The purpose is to allow large shareholders in a single corporation to exchange their concentrated holding in exchange for a share in the pool's more diversified portfolio.

ETFs can offer lower operating costs than traditional open-end funds, flexible trading, greater transparency, and better tax efficiency in taxable accounts. For nearly a century, traditional mutual funds have offered many advantages over building a portfolio one security at a time.

ETFs tend to be less volatile than individual stocks, meaning your investment won't swing in value as much. The best ETFs have low expense ratios, the fund's cost as a percentage of your investment. The best may charge only a few dollars annually for every $10,000 invested.

For most individual investors, ETFs represent an ideal type of asset with which to build a diversified portfolio. In addition, ETFs tend to have much lower expense ratios compared to actively managed funds, can be more tax-efficient, and offer the option to immediately reinvest dividends.