An exchange-traded fund (ETF) is a security that tracks an index, a market, a sector, or a basket of assets like an index fund, but trades like a stock on an exchange. Most ETFs try to replicate the performance of an index, like the S&P 500 or MSCI EAFE. Like stocks, ETFs have ticker symbols and can be bought and sold through a typical brokerage account.
ETFs have many advantages over mutual funds (and even index funds in some cases).
- ETFs are generally passive investment vehicles with low expense ratio. They tend to be more cost-efficient than mutual funds because they charge significantly less management fees.
- ETFs are more tax-efficient than mutual funds by the nature of their unique structure since they seldom trigger capital gains.
- As mentioned before, ETFs can be traded like stocks throughout the trading day. Mutual funds, on the other hand, are priced only at the end of the trading day.
Read more about ETFs at the Wherewithal Blog: http://getwherewithal.com/investing-handbook/etfs-what-they-are-what-they-are-not/