What is an ETF?
An exchange-traded fund (ETF) is a pooled investment vehicle with shares that investors can buy and sell throughout the day on a stock exchange at a market-determined price. Investors may buy or sell shares through a broker or in a brokerage account just as they would shares of any publicly traded company.
To compare an ETF with a mutual fund:
- ETFs trade throughout the day while mutual funds only trade at the end of each trading day.
- Mutual funds trade at a determined price set by the mutual fund company (called net asset value or NAV); ETFs trade at prices set every second by the market.
- Investors buy and sell mutual fund shares “directly” from the mutual fund company; investors buy and sell ETF shares directly from other investors (however, the actual buying and selling is usually done through your broker).
- Costs (especially tax costs) of an ETF are usually lower than actively managed funds and similar to index funds.
ETFs have been available as an investment product for nearly 25 years in the United States, but have only recently become extremely popular. In the early years, ETFs acted much like index funds as most ETFs simply tracked standard indices. Today however, you can buy an ETF for pretty much any asset class or strategy.
ETFs offer investors many benefits and may be appropriate for any portion of your portfolio.
If you have any questions, or would like to learn more about ETFs and whether they may be beneficial within your own portfolio, please contact your M. Griffith advisor.