Exchange Traded Funds (ETFs) offer a relatively simple way to invest which makes it low cost, flexible, simple, and easy to trade. An ETF is a basket of securities that tracks the performance of a specific market index – like the S & P 500 or the Russell 2000. Like stocks, you can trade ETFs on a stock exchange during regular market hours. I like to think of ETFs as a hybrid between stocks and mutual fund. An ETF can be bought and sold whenever the market is open like a stock, and it’s a portfolio of stocks/bonds. ETFs are a simple and use full investment option.
ETFs provide more diversification than individual stocks because it gives you exposure to a multitude of stocks in one position. Unlike actively managed funds, ETFs do not typically aim to beat the market index but instead match its performance minus any fees. They also give you the flexibility to buy throughout the day unlike mutual funds that price once a day. ETFs give you instant diversification into many different market sectors, which reduces risk while maximizing returns.
In summary, ETFs are a great way to invest because they are low cost and tax efficient. You know exactly what you are getting, there are no surprises, and they make buying and selling in the market very easy.