ETF (Exchange-Traded Fund)

An ETF lets you buy a whole collection of investments in a single trade. The most popular ETF in the world, SPY, tracks the S&P 500—so buying one share gives you exposure to 500 large US companies at once.

ETFs give you the diversification of mutual funds with the flexibility of stocks. You can buy and sell them throughout the trading day, use limit orders, and even short sell them. Traditional mutual funds? They only price once a day after the market closes.

Fees are where ETFs really shine. Index-tracking ETFs often charge just 0.03% to 0.20% per year, compared to 0.50% to 1.50% for actively managed mutual funds. That gap might sound small, but over decades of compounding it can cost you tens of thousands of dollars on a large portfolio.

You can find an ETF for just about anything: US stocks, international stocks, bonds, commodities, real estate (REITs), specific sectors like tech or healthcare, investing styles like value or momentum, and even crypto. This breadth makes ETFs the building blocks of modern portfolios.

ETFs are also more tax-efficient than mutual funds. Their unique structure means they rarely distribute capital gains to shareholders—unlike mutual funds, which can pass through taxable gains even if you didn't sell anything. That makes ETFs especially smart for taxable accounts.