{"id":979946,"date":"2025-01-08T15:35:02","date_gmt":"2025-01-08T13:35:02","guid":{"rendered":"https:\/\/www.etoro.com\/?page_id=979946"},"modified":"2025-01-08T15:35:06","modified_gmt":"2025-01-08T13:35:06","slug":"what-is-an-etf","status":"publish","type":"page","link":"https:\/\/www.etoro.com\/en-us\/academy\/videos\/what-is-an-etf\/","title":{"rendered":"What Is An ETF?"},"content":{"rendered":"\n

Description<\/h2>
Discover the basics of how ETFs work, along with their benefits and risks, in this beginner’s guide.<\/div><\/div>

Transcript<\/h2>
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Want to get the know-how on ETFs?<\/p>\n\n\n\n

If so, you’re in the right place.<\/p>\n\n\n\n

Welcome to the ETF beginners guide.<\/p>\n\n\n\n

Managing your portfolio and deciding where to put your money can be quite unnerving.<\/p>\n\n\n\n

Exchange traded funds, or \u201cETF\u201ds, can help simplify the process.<\/p>\n\n\n\n

You can think of most ETFs as baskets of investments.<\/p>\n\n\n\n

Instead of investing in individual assets like stocks or bonds, each with its own levels of risk, you can simply invest in the basket.<\/p>\n\n\n\n

Much like a mutual fund, ETFs are a collection of stocks, bonds, or other assets.<\/p>\n\n\n\n

But while most mutual funds are actively managed, most ETFs seek to passively track the performance of an index, either directly or inversely.<\/p>\n\n\n\n

For instance, a broad market ETF might follow the S&P 500. a sector ETF might follow healthcare or energy companies, a bond ETF might follow government or corporate bonds, and so on.<\/p>\n\n\n\n

When the index moves so does the ETF.<\/p>\n\n\n\n

In addition, ETFs come with potentially lower fees and lower investment minimums.<\/p>\n\n\n\n

Plus, they can be traded throughout business hours offering you flexibility to adapt to the changing market conditions.<\/p>\n\n\n\n

It’s easy to see why ETFs are being considered by more and more investors.<\/p>\n\n\n\n

For one, they have the benefit of diversification.<\/p>\n\n\n\n

ETFs can hold hundreds – sometimes thousands – of securities, meaning that, depending on the ETF, you may have access to multiple markets and asset classes, helping to increase diversity and lower risk.<\/p>\n\n\n\n

They can be cost efficient and even tax-efficient all thanks to the fact that they trade less frequently than actively managed funds, therefore generating fewer tax consequences.<\/p>\n\n\n\n

Of course, it’s also important to acquaint ourselves with the risks. <\/p>\n\n\n\n

If investment prices drop due to market conditions, the ETF price will likely follow suit.<\/p>\n\n\n\n

During volatile trading periods, you may be able to liquidate ETFs quickly but not necessarily without loss.<\/p>\n\n\n\n

Also note that sometimes an ETF\u2019s performance does not exactly match its underlying index.<\/p>\n\n\n\n

This may lead to small discrepancies between the fund\u2019s performance and its benchmark.<\/p>\n\n\n\n

So, before you start storming the market, take another moment to assess your goals.<\/p>\n\n\n\n

Determine your risk tolerance, do the proper research, and only then make informed decisions on what best suits your needs, just like you would with any other investment.<\/p>\n\n\n\n

In our next few lessons, we’ll explore the types of ETFs out there and help you learn how to choose the ones that are right for you.<\/p>\n\n\n\n

See you there.<\/p>\n\n\n\n

eToro encourages its customers to carefully consider the funds\u2019 investment objectives, risks, and charges and expenses carefully before investing. This and other information can be found in the funds\u2019 prospectuses or, if available, the summary prospectuses which may be obtained by visiting each fund company’s website or www.sec.gov\/edgar\/search<\/a>. For iShares funds please visit www.iShares.com\/prospectus<\/a>. Read the prospectuses carefully before investing.<\/em><\/p>\n<\/div>