The Basics on Exchange-Traded Funds
Time to add ETFs to your portfolio?
ETFs (exchange-traded funds) are the new mutual funds: a fast growing investment category that's likely to have a major impact on your portfolio over the next few decades.
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Take our two-minute tour to get up to speed on ETFs
Tens of billions of dollars a month are flowing into ETFs – currently over $466 Billion is invested in ETFs traded on U.S. exchanges. And since the first fund launched in 1993, over 400 ETFs have come on the market, with an additional several hundred scheduled for launch in 2007.
How should investors use ETFs in their portfolio, and how do they compare to mutual funds? What are the advantages and potential risks of ETFs? What are the key differences among the hundreds of ETFs on the market? Finding clear answers to these questions is crucial given the hype accompanying the category’s growth.
ETFBasics.com is dedicated to providing basic knowledge about ETFs – what they are and how they work.
We'll help you cut through the clutter, get up to speed and stay informed on ETFs so you can take advantage of this powerful new investing vehicle.
To get started learning about ETFs, take our Quick Basics Tour.
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Five questions to ask before buying an ETF:
- 1) How does it fit into your overall portfolio and investment strategy?
- 2) Do you fully understand the index the ETF is based on? Look at the fund's strategy and actual holdings, not just the name – many ETFs hold investments you might not expect.
- 3) Is the ETF broad-based and diversified, or is it highly concentrated in a single sector or asset class, or a handful of stocks? Does it use leverage or shorting?
- 4) Have you factored broker commissions into the ETF's overall costs, especially for frequent incremental purchases over time (e.g. dollar cost averaging)?
- 5) Have you checked the ETF's annual management fee? Although most ETF annual fees are low, some sponsors have begun to introduce higher fees, especially on specialized ETFs.