what is an etf if an index fund and a
stock got married and started a family
their children would be ETFs exchange
traded funds ETFs have inherited traits
from each parent just like index funds
most ETFs are passively managed
diversified and low-cost and just like
stocks ETFs are bought through a
brokerage account and trade on an
exchange at any time during the day this
mashup of desirable traits has made ETFs
increasingly popular investment tools
there are over 6,000 ETFs on 60
exchanges around the world with about 3
trillion dollars in assets here's how
they work
imagine ETFs are baskets and this is the
important part each basket holds actual
securities so for example a bonds basket
could be packed with a collection of
government or corporate bonds the solar
stocks basket holds real shares and
companies that make solar panels there's
even a gold basket backed by you guessed
it gold bars sitting in a vault now
let's say you had $1000 and you wanted
to buy gold problem is $1000 isn't going
to buy a whole lot of gold only about an
ounce it's really difficult not to
mention risky to store your own gold
what would be a lot easier and safer is
to invest your thousand dollars in a
gold ETF when you do that you're not
buying the gold itself you're buying
shares of a big basket of gold shares
the trade just like stocks and those are
the two big attractions of ETFs you
don't need to be wealthy to invest in
them and they are simple to buy sell and
own another draw ETFs almost never incur
yearly capital gains taxes like mutual
funds can you'll only pay taxes when you
sell your shares in the ETF for a profit
it's no wonder that ETFs have exploded
in the US alone ETFs trade about 20
trillion dollars worth of shares a year
which is more than US GDP it seems clear
that ETFs are going to be part of the
investing universe for many years to
come