So what are they?
ETFs are a fund that owns a collection of assets, such as stocks, bonds, commodities, etc.
Buying into a ETF gives you instant diversification as you get a share of all the underlying assets in the fund.
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ETFs are a fund that owns a collection of assets, such as stocks, bonds, commodities, etc.
Buying into a ETF gives you instant diversification as you get a share of all the underlying assets in the fund.
ETFs are similiar to a mutual fund in that they both hold a collection of assets. However unlike mutual funds, ETFs are traded throughout the day on a stock exchange just like regular stocks.
Since they trade like a stock, ETFs don't have a Net Asset Value (NAV) that gets calculated at the end of the day like mutual funds do. Instead their price fluctuates up and down as they get bought and sold throughout each trading session.
All ETFs charge their shareholds an Expense Ratio. This fee is used to cover the fund's operating expenses, and will be written as an percentage of a fund's average net assets.
The higher the expense ratio the lower your returns will be. It is also important to realize that a higher expense ratio doesn't mean that it will perform better than a lower ratio. When comparing funds' expense ratios, you should only compare funds of a similar type. Ratios can be as high as 2.5% or as low as 0.07%
Generally ETFs have a lower expense ratio than mutual funds, which is one of the reasons ETFs can be an attractive investment.
(over 10 years, assuming a 6% annual return)