What are exchange-traded funds (ETFs)?

Exchange-traded funds (ETFs) are investment funds that are traded on stock exchanges, similar to individual stocks. They typically hold a diverse portfolio of assets, which can include stocks, bonds, commodities, or a mix of different investment types. This diversification allows investors to gain broad exposure to various sectors of the market without having to buy each stock or bond individually. One of the key advantages of ETFs is that they offer liquidity and flexibility, as they can be bought and sold throughout the trading day at market prices.

ETFs often track an index, such as the S&P 500, providing a way for investors to gain passive exposure to a wide range of securities. This structure appeals to both novice and experienced investors seeking to diversify their portfolios while maintaining ease of trading. The low expense ratios and tax efficiency of ETFs are additional benefits that contribute to their popularity in investment strategies.