ETFs provide a way to invest in a basket of securities. These investments can allow you to take advantage of the diversification aspects of mutual funds with the added flexibility to trade throughout the day like stocks.
ETFs are traded just like stocks—this allows you to lock in a price for the ETF’s underlying stocks at any given moment as opposed to accepting that day’s closing prices. In this way, ETFs can be a quick, practical and cost-effective way to invest in the market. They also provide investors with access to a specific market, index or sector without having to buy each stock separately. Every major stock index, including Standard & Poor’s 500 Index, the Dow Jones Industrial Average and the NASDAQ composite has an index-based ETF.
Over the long run, ETFs can be an economical way to invest. ETFs generally have lower fees than those of mutual funds because most ETFs are not actively managed.
The following chart compares the major characteristics of ETFs with stocks and mutual funds:
|Ability to buy and sell options||Yes||Yes||No|
|Ability to buy on margin||Yes||Yes||Yes|
|Ability to actively trade throughout
|Expense ratio||Generally Lower||Not Applicable||Generally Higher|
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An Investment Counselor can open a brokerage account and help you find the right ETFs to meet your investing goals.