ETFs trade like stocks and can be purchased on exchanges such as the Nasdaq or New York Stock Exchange. When you buy an ETF, you’re buying a basket of different assets the ETF is invested in. In other words, you gain a very small ownership share in lots of different individual stocks.
When you’ve purchased an ETF, you get instant diversification because you’re buying a small stake in many different businesses instead of one. You don’t have to research individual companies, and picking between ETFs is easy, since you can just take a quick glance at the types of assets the fund invests in, the fees it charges, and its past performance.
Most brokerage firms have screeners that allow you to easily narrow down ETFs based on what kind of companies you want to buy into. And many ETFs are passively managed, which means algorithms pick the investments or the investments are chosen to mirror a financial index. So the administrative costs are very low, and high fees won’t eat into your potential returns.
Of course, there’s still a risk you could lose money with ETFs. But that risk is reduced compared with investing in individual stocks because you’re putting your eggs into many baskets instead of just one.
How ETF investing can make you rich
The great thing about ETFs is that there are tons of them available, so they make it possible for you to invest in different kinds of companies or industries without much research or specialized knowledge.