What is ETF and how does it work?
ETF (Exchange-Traded Fund) investing involves buying shares in a fund that holds a diversified portfolio of assets.
Diversification: ETFs typically hold a variety of assets, such as stocks, bonds, commodities, or a mix of these, providing investors with diversified exposure.
Types of ETFs:
- Stock ETFs: Track a specific index like the S&P 500.
- Bond ETFs: Hold a collection of bonds.
- Commodity ETFs: Invest in commodities like gold or oil.
- Sector and Industry ETFs: Focus on specific sectors like technology or healthcare.
- International ETFs: Invest in non-U.S. markets.
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Benefits:
- Lower Costs: Generally have lower expense ratios compared to mutual funds.
- Flexibility: Can be bought and sold throughout the trading day at market prices.
- Transparency: Holdings are usually disclosed daily.
- Tax Efficiency: Often more tax-efficient due to their structure.
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