An exchange-traded fund, or ETF, is a fund that holds a collection of investments, such as all 500 companies in the S&P 500, and trades on a stock exchange like a single share.
Why investors use ETFs
ETFs have become one of the most popular ways to invest because they offer:
- Instant diversification: one purchase spreads your money across dozens or hundreds of holdings.
- Low costs: many index ETFs charge annual fees below 0.10%.
- Flexibility: you can buy and sell throughout the trading day at market prices.
- Transparency: most ETFs publish their full holdings every day.
Types of ETF
Index ETFs track a market index. Sector ETFs focus on one industry, such as technology or healthcare. Bond ETFs hold government or corporate debt. Dividend ETFs select companies with strong payouts. Check the expense ratio and what the fund actually holds before you buy.
This guide is for education only and isn't investment advice. Investing involves risk, including the possible loss of principal.
