An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, industry sector, commodity, or other asset, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies.

• • 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
  • ETFs can contain all types of investments, including stocks, commodities, or bonds; country specific, global or broad international indexes; sector or industry specific.

• • ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually.

An ETF is a very inexpensive way to construct a portfolio of diversified exposure to the investment marketplace. The growth in total assets invested in ETFs have mirrored a profound interest in self-direct investment portfolios. Their flexibility and broad market exposures allow for a portfolio to be structure to satisfy your specific needs. Depending upon your aptitude and ability to manage your investments, your portfolio can be as simple and straightforward as you perceive your needs, or as complex as your skills will allow. Just like stocks or other broadly held securities, the larger the ETF and the more broadly traded they are, the easier it will be to buy and sell these investments. Small or infrequently traded ETFs may not be as readily traded. This may pose some issues in selling in volatile or negative markets.

• • VOLUME: Trading volume over a particular period of time allows you to compare the popularity of different funds; the higher the trading volume, the easier it may be to trade that fund.
  • EXPENSE: The lower the expense ratio, the less of your investment that is given over to administrative costs. While it may be tempting to always search for funds with the lowest expense ratios, sometimes costlier funds (such as actively managed ETFs) have strong enough performance that it more than makes up for the higher fees.
  • PERFORMANCE: While past performance is not an indication of future returns, this is nonetheless a common metric for comparing ETFs.
  • HOLDINGS: The portfolios of different funds often factor into screener tools as well, allowing customers to compare the different holdings of each possible ETF investment.
  • COMMISSIONS: Many ETFs are commission-free, meaning that they can be traded without any fees to complete the trade. However, it is worth checking if this is a potential dealbreaker.

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