What Is an ETF?
An ETF, or exchange-traded fund, is one investment that holds many stocks or bonds at once. You buy it like a single stock, but you own a small slice of everything inside it.
How an ETF works
A fund company buys a basket of investments, for example all the companies in the S&P 500. It then splits the basket into shares and lists them on a stock exchange. When you buy one share, you get a tiny piece of the whole basket.
Is an ETF better than stocks?
Neither is better for everyone. One stock can rise or fall a lot on its own news. An ETF spreads your money over many companies, so one bad company hurts less. This is called diversification. The trade-off is that one great company cannot lift your return as much.
ETF vs mutual fund
Both hold many investments. An ETF trades all day at changing prices, just like a stock. A mutual fund is priced only once a day, after the market closes. ETFs are often cheaper and easier to buy through any broker.
What does an ETF cost?
Each ETF charges a yearly fee called the expense ratio. A fee of 0.05% means $5 a year for every $10,000 invested. Small fees matter a lot over many years because of compounding.
See it in real companies
Open a company to see what it sells and how it makes money.