What is an ETF? Your Guide to Transparent, Low-Cost Investing

The Evolution of Investing: Introducing the Exchange-Traded Fund (ETF)

For decades, the standard choice for diversified investing was the mutual fund. However, the investment landscape has been rapidly modernized by the introduction of the Exchange-Traded Fund (ETF). This instrument combines the diversification of a traditional fund with the trading flexibility and transparency of a stock. The result is a powerful, cost-effective tool accessible to nearly every investor.

An ETF is a basket of securities—which can include stocks, bonds, commodities, or a mix—that is traded on a stock exchange like the New York Stock Exchange (NYSE) or Nasdaq, just like a single company share.

What you own when you buy an ETF: When you buy a share of an ETF, you are acquiring a small slice of ownership in a diverse portfolio of assets that the fund manager has assembled. Instead of taking on the concentrated risk of one stock, an ETF instantly provides diversification across dozens or even hundreds of underlying holdings. This structure inherently helps mitigate individual security risk.

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