ETF (Exchange‑Traded Fund)

What Is an ETF?

An exchange‑traded fund (ETF) is a collection of stocks, bonds, or other assets that you can buy and sell on a stock exchange, just like a single stock. Most ETFs track an index, like the S&P 500.

Why Investors Love ETFs

• Low cost: many have expense ratios under 0.03%
• Diversification: one share can own hundreds of companies
• Flexibility: trade any time the market is open, not just end‑of‑day like mutual funds

Example

The SPY (SPDR S&P 500 ETF) holds all 500 companies in the S&P 500. Buying one share gives you a tiny slice of Apple, Microsoft, Amazon, and the rest – instantly diversified.

Tax Efficiency

ETFs are generally more tax‑efficient than mutual funds because of their unique creation/redemption process, which minimizes capital gains distributions.

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Last verified: July 2026