Easy Money: What is an ETF?

You’ve heard of stocks, bonds, and mutual funds, but what is an ETF?

I like to describe ETFs as kind of a combination of stocks and mutual funds. The actual investment is more like a mutual fund where it’s professionally traded, and it’s a group of similar investments based on what you want, but it’s traded more like a stock because you have to find a buyer and it’s traded on an exchange like a stock or a bond.

The benefits of an ETF is they’re usually low cost because once you buy it, there’s not a lot of trading that goes on. So they’re usually a lot lower cost than a mutual fund, and that’s why a lot of people like them. The downfall of an ETF is that they have to be traded. So if they have to be traded and there’s not somebody to buy it or you can’t find somebody right away, it all depends on finding a buyer(kind of like a stock).

So if you’re looking for something that’s really low cost and you don’t plan on trading it for a while, then an ETF can be really good. If it’s something that you want to be able to redeem whenever you want and don’t have to find a buyer, then you might want to go with a mutual fund instead.

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