What is ETF and how does it work?

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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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