Exchange-traded funds (ETFs) are a little different. ETFs are composed of units of underlying investments. They are created and redeemed in large lots. They trade like stocks on the market.
This means the price changes regularly throughout the day, and they are more flexible than mutual funds. Dedicated apps like Public make it easy to buy and sell ETFs.
Like mutual funds, you may have to pay a yearly fee — called an “expense ratio” — but the fee is often quite small with an ETF. Plus, there is no need to sell investments held in an ETF when an investor wants out. This means that you are unlikely to be surprised by a capital gains tax due to fund turnover.
Who Should Invest in ETFs?
Invest in ETFs if you are more interested in asset allocation and less interested in picking individual stocks. ETFs offer a little more flexibility than mutual funds, in that they can be traded like stocks on the exchange. You usually don’t have to worry about load fees, and you can trade throughout the day. However, these investments work best for those who plan to use them for long-term investing.
Where to Invest in ETFs
You can invest in ETFs just about anywhere that offers stock trading. Most traditional and online brokers offer ETFs. In most cases, their transaction fees are the same as for stocks.
Additionally, many robo advisors use ETFs in their portfolios. If you’re using a robo advisor like Betterment or Acorns, your portfolio will be made up of ETFs.