Editor’s note: This article was first published in September 2010. Its description of the incredible growth of ETFs, and their billing as the investment vehicle of the 21st century, reflect that time. ETFs have kept growing since.
The growth in the number of investors putting their money into ETFs has been incredible. Today they’re considered the investment vehicle of the 21st century. ETFs, or exchange-traded funds, are baskets of securities (bonds, commodities) designed to behave like individual shares.
ETFs are funds with the same characteristics as ordinary investment funds, with the difference that an ETF trades on the stock market just like shares.
Among the advantages of ETFs, they can be bought and sold while the market is open, in real time and with no additional fees. With investment funds, by contrast, once you place a sell order you’re given the session’s closing price. If things have changed in the meantime, the result may not be very profitable.
Another advantage of ETFs is that they adapt perfectly to the investor’s needs. Unlike investment funds, there’s no minimum holding period.
The risks of investing in ETFs are much lower than those of investment funds, and even of individual shares, because an ETF is a diversified basket of securities.
But perhaps the best definition of an ETF would be this: an ETF is an investment fund that is cheaper, less risky and, in many cases, more profitable.
Further reading
- Investing in warrants
- Why the stock market is the most profitable investment
- The only secrets to getting rich
Featured image: Benjamín Núñez González, CC BY-SA 4.0, via Wikimedia Commons.
