🕷️ Crawler Inspector

[History & Society](https://www.britannica.com/History-Society)[Science & Tech](https://www.britannica.com/Science-Tech)[Biographies](https://www.britannica.com/Biographies)[Animals & Nature](https://www.britannica.com/Animals-Nature)[Geography & Travel](https://www.britannica.com/Geography-Travel)[Arts & Culture](https://www.britannica.com/Arts-Culture)[ProCon](https://www.britannica.com/procon)[Games & Quizzes](https://www.britannica.com/quiz/browse)[Videos](https://www.britannica.com/videos)[On This Day](https://www.britannica.com/on-this-day)[One Good Fact](https://www.britannica.com/one-good-fact)[Dictionary](https://www.britannica.com/dictionary) - [Lifestyles & Social Issues](https://www.britannica.com/browse/Lifestyles-Social-Issues) - [Philosophy & Religion](https://www.britannica.com/browse/Philosophy-Religion) - [Politics, Law & Government](https://www.britannica.com/browse/Politics-Law-Government) - [World History](https://www.britannica.com/browse/World-History) - [Health & Medicine](https://www.britannica.com/browse/Health-Medicine) - [Science](https://www.britannica.com/browse/Science) - [Technology](https://www.britannica.com/browse/Technology) - [Browse Biographies](https://www.britannica.com/browse/biographies) - [Birds, Reptiles & Other Vertebrates](https://www.britannica.com/browse/Birds-Reptiles-Vertebrates) - [Environment](https://www.britannica.com/browse/Environment) - [Fossils & Geologic Time](https://www.britannica.com/browse/Fossil-Geologic-Time) - [Insects & Other Invertebrates](https://www.britannica.com/browse/Bugs-Mollusks-Invertebrates) - [Mammals](https://www.britannica.com/browse/Mammals) - [Plants](https://www.britannica.com/browse/Plants) - [Geography & Travel](https://www.britannica.com/browse/Geography-Travel) - [Entertainment & Pop Culture](https://www.britannica.com/browse/Entertainment-Pop-Culture) - [Literature](https://www.britannica.com/browse/Literature) - [Sports & Recreation](https://www.britannica.com/browse/Sports-Recreation) - [Visual Arts](https://www.britannica.com/browse/Visual-Arts) [Image Galleries](https://www.britannica.com/gallery/browse)[Podcasts](https://www.britannica.com/podcasts)[Summaries](https://www.britannica.com/summary)[Top Questions](https://www.britannica.com/question)[Britannica Kids](https://kids.britannica.com/) [](https://www.britannica.com/money) [Household Finance](https://www.britannica.com/money/browse/household-finance) [Investing](https://www.britannica.com/money/browse/investing) [Trading](https://www.britannica.com/money/browse/Trading) [Retirement](https://www.britannica.com/money/browse/retirement) [Companies](https://www.britannica.com/money/browse/Companies) [Biographies](https://www.britannica.com/money/browse/Biographies) [Finance & the Economy](https://www.britannica.com/money/browse/history-and-theory) Table of Contents *** - [Introduction](https://www.britannica.com/money/exchange-traded-funds-etfs#ref2234971-1) - [ETFs: Like mutual funds, but different](https://www.britannica.com/money/exchange-traded-funds-etfs#ref351774) - [Why are ETFs growing in popularity?](https://www.britannica.com/money/exchange-traded-funds-etfs#ref351775) - [What are the types of ETFs?](https://www.britannica.com/money/exchange-traded-funds-etfs#ref351776) - [The bottom line](https://www.britannica.com/money/exchange-traded-funds-etfs#ref351777) - [References](https://www.britannica.com/money/exchange-traded-funds-etfs#ref2234971-references) Read More [ How to choose mutual funds that fit your goals](https://www.britannica.com/money/mutual-fund-selection) [ Bond funds: Know the types before you choose](https://www.britannica.com/money/bond-fund-types-list) [ Volatility index ETFs and ETNs: Understanding the risks](https://www.britannica.com/money/volatility-etfs-explained) Table Of Contents [Investing](https://www.britannica.com/money/browse/investing) [ETFs & Mutual Funds](https://www.britannica.com/money/browse/ETFs-Mutual-Funds) # What are exchange-traded funds (ETFs) and how do they work? An investor guide They’re like mutual funds, but different. Print Cite Share **Written by**Colin Dodds [Colin Dodds](https://www.britannica.com/money/author/colin-dodds/12867035) Colin Dodds is a writer, editor and filmmaker who has worked with some of the biggest companies in media, technology and finance including Morgan Stanley, Charles Schwab and Bank of America. **Fact-checked by**Doug Ashburn [Doug Ashburn](https://www.britannica.com/money/author/douglas-ashburn/12849777) Doug is a Chartered Alternative Investment Analyst who spent more than 20 years as a derivatives market maker and asset manager before “reincarnating” as a financial media professional a decade ago. Table of Contents *** - [Introduction](https://www.britannica.com/money/exchange-traded-funds-etfs#ref2234971-1) - [ETFs: Like mutual funds, but different](https://www.britannica.com/money/exchange-traded-funds-etfs#ref351774) - [Why are ETFs growing in popularity?](https://www.britannica.com/money/exchange-traded-funds-etfs#ref351775) - [What are the types of ETFs?](https://www.britannica.com/money/exchange-traded-funds-etfs#ref351776) - [The bottom line](https://www.britannica.com/money/exchange-traded-funds-etfs#ref351777) - [References](https://www.britannica.com/money/exchange-traded-funds-etfs#ref2234971-references) Read More [ How to choose mutual funds that fit your goals](https://www.britannica.com/money/mutual-fund-selection) [ Bond funds: Know the types before you choose](https://www.britannica.com/money/bond-fund-types-list) [ Volatility index ETFs and ETNs: Understanding the risks](https://www.britannica.com/money/volatility-etfs-explained) Table Of Contents  Open full sized image Some investments for your shopping basket. © Robert Knapp—iStock/Getty Images, © tupungato—iStock/Getty Images, © structuresxx—iStock/Getty Images; Photo composite Encyclopædia Britannica, Inc. Exchange-traded funds (ETFs) are ready-made collections of stocks, bonds, and/or other assets that trade throughout the day on an exchange. You might buy an ETF as a way to [invest in an index](https://www.britannica.com/money/index-fund-investing), [market sector](https://www.britannica.com/money/market-cycle-investing), or other specific strategy. With ETFs, you can trade in or out of the market at a moment’s notice. ## Key Points - ETFs have grown in popularity over the last 20 years because of their low cost and simplicity. - Many ETFs are passively managed, targeting the return profile of an index. - Some ETFs are more exotic, using derivatives to track the inverse of an index, or they may offer leveraged exposure. ## ETFs: Like mutual funds, but different ETFs are similar to [mutual funds](https://www.britannica.com/money/what-are-mutual-funds) in that you can easily buy a diversified but focused basket of securities. Different ETFs focus on different asset classes, such as stocks, bonds, or commodities. Some ETFs invest in specific niche sectors or markets. Some look to capture returns that reflect major market indexes. A few attempt to deliver returns that are the opposite of a particular index. Most ETFs are set up to track an index, such as the [S\&P 500](https://www.britannica.com/money/SandP-500), making them similar in nature to index mutual funds. But here’s where ETFs and mutual funds diverge: A mutual fund sets its settlement price once—and only once—per day, at what’s called the net asset value (NAV). All customer flows in and out of the fund (i.e., purchases and redemptions) take place at the day’s NAV. In contrast, ETFs trade like stocks. Bids and offers are posted throughout the trading day, which means you can buy or sell whenever the market is open, and you can also track the value of your ETF investment down to the penny. ## Why are ETFs growing in popularity? When ETFs first launched at the beginning of the 21st century, they were primarily popular with traders, who took advantage of the ability to buy and sell them throughout the day. But ETFs have since become popular with more casual investors because of their simplicity, ease of trading, and low fees. Because most ETFs are based on indexes, the larger ETFs can charge very low management fees compared with the average mutual fund. But mutual funds still hold the lion’s share of assets. Although the total ETF investment in the U.S. grew from \$1 trillion in 2012 to \$7.2 trillion in 2022, according to the Investment Company Institute, U.S.-registered mutual funds hold \$27 trillion (as of 2022). ## What are the types of ETFs? **Index ETFs**—byfar the most common ETF strategy—invest in broad indexes that can include hundreds or even thousands of stocks, such as the Russell 3000. Index ETFs can offer an easy way to invest in the market as a whole. But beyond the index-based universe, there’s a wide array of ETFs that target specific stock sectors and industries, bonds and other fixed-income securities, emerging markets, and more. Here’s a sampling: - **Sector/industry ETFs.** These ETFs own the stocks in a specific business or industry within a particular index. For example, to mirror the S\&P 500’s technology sector, an investor might look at the **Technology Select Sector SPDR Fund ETF** (XLK) or other tech sector ETF. - **Fixed-income ETFs.** These ETFs invest in a specific type of bond and/or risk profile to deliver regular income. Many investors use fixed-income ETFs as part of a [diversified portfolio](https://www.britannica.com/money/portfolio-diversification-benefits) of stocks and bonds. - **Commodities ETFs.** Some invest in a single commodity such as corn, crude oil, or gold, either through physical storage or commodity [futures contracts](https://www.britannica.com/money/what-is-a-futures-contract). Others invest in a basket of different commodities to allow investors to take advantage of general price changes. - **Inverse ETFs.** Using financial derivatives such as options and futures contracts, these ETFs seek to capture the *opposite* performance from what a given index is delivering. If that index is going up, then these ETFs are designed to go down, and vice versa. Inverse ETFs are popular among investors who expect a market downturn. But they can charge high fees, and they don’t always hit their targets precisely. - **Leveraged ETFs.** These ETFs also use futures and options contracts—which trade on margin (essentially borrowed money)—as a way of amplifying returns. For example, an ETF might target double (2x) or triple (3x) the daily return on the S\&P 500 Index. But leverage is a double-edged sword. Losses are also magnified by 2x or 3x (or more). - **International and emerging markets ETFs.** These ETFs invest in [market and sector indexes across the globe](https://www.britannica.com/money/international-stock-investing). An ETF might diversify across regions, or it might target only one region, such as Europe. Or it might invest only in stocks from a single country like Japan. Some ETFs concentrate on [emerging markets and developing economies](https://www.britannica.com/money/what-is-emerging-market-investing). - **Factor-based (aka “smart-beta” and “rules-based”) ETFs.** This is one of the newer forms of ETF. These funds are managed to strategically diverge from an index’s precise weightings. Smart-beta funds try to “beat the index” by shifting allocations among the index components toward those with greater upside potential. For example, a fund might lean toward stocks with lower volatility or higher dividend yields, or it might follow the charts and favor stocks with upside momentum. Note: Although the term exchange-traded fund (ETF) is commonly used to describe these products, some—particularly those that use derivatives to target the performance of an index—are technically exchange-traded notes (ETNs). ETFs are backed by the shares in a fund; ETNs are a tradable loan issued by a bank or other financial entity. Regardless of the structure—ETF or ETN—it’s important to [read the fund prospectus](https://www.britannica.com/money/prospectus-definition) before investing. ## The bottom line With more than 8,500 ETFs to choose from globally (as of 2022), if you have investable assets, there’s probably an ETF or two worth considering. ETFs offer an easy, cost-effective way to build a [highly diversified portfolio](https://www.britannica.com/money/investment-types) and tweak it as necessary over time. And these days, most online brokers allow their clients to buy and sell ETFs commission free. You just need to know what your objectives are: widespread diversification, targeted exposure, a global reach, or something in between. Happy ETF hunting\! ## References - [Investor Bulletin: Exchange-Traded Funds (ETFs)](https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-24) \| investor.gov - [Investment Company Fact Book](https://www.icifactbook.org/) \| icifactbook.org Table of Contents *** - [Introduction](https://www.britannica.com/money/mutual-fund-fees#ref2234973-1) - [Types of annual fees](https://www.britannica.com/money/mutual-fund-fees#ref351762) - [Mutual fund sales loads](https://www.britannica.com/money/mutual-fund-fees#ref351763) - [Fees for no-load mutual funds](https://www.britannica.com/money/mutual-fund-fees#ref351764) - [Expense ratio example: How fees affect returns](https://www.britannica.com/money/mutual-fund-fees#ref351765) - [The bottom line](https://www.britannica.com/money/mutual-fund-fees#ref351766) - [References](https://www.britannica.com/money/mutual-fund-fees#ref2234973-references) Read More [ How to choose mutual funds that fit your goals](https://www.britannica.com/money/mutual-fund-selection) [ Bond funds: Know the types before you choose](https://www.britannica.com/money/bond-fund-types-list) [ Volatility index ETFs and ETNs: Understanding the risks](https://www.britannica.com/money/volatility-etfs-explained) Table Of Contents [Investing](https://www.britannica.com/money/browse/investing) [ETFs & Mutual Funds](https://www.britannica.com/money/browse/ETFs-Mutual-Funds) # Sales loads, 12b-1 fees, and more: A closer look at mutual fund fees A little slice for management. Print Cite Share **Written by**Colin Dodds [Colin Dodds](https://www.britannica.com/money/author/colin-dodds/12867035) Colin Dodds is a writer, editor and filmmaker who has worked with some of the biggest companies in media, technology and finance including Morgan Stanley, Charles Schwab and Bank of America. **Fact-checked by**Doug Ashburn [Doug Ashburn](https://www.britannica.com/money/author/douglas-ashburn/12849777) Doug is a Chartered Alternative Investment Analyst who spent more than 20 years as a derivatives market maker and asset manager before “reincarnating” as a financial media professional a decade ago. Table of Contents *** - [Introduction](https://www.britannica.com/money/mutual-fund-fees#ref2234973-1) - [Types of annual fees](https://www.britannica.com/money/mutual-fund-fees#ref351762) - [Mutual fund sales loads](https://www.britannica.com/money/mutual-fund-fees#ref351763) - [Fees for no-load mutual funds](https://www.britannica.com/money/mutual-fund-fees#ref351764) - [Expense ratio example: How fees affect returns](https://www.britannica.com/money/mutual-fund-fees#ref351765) - [The bottom line](https://www.britannica.com/money/mutual-fund-fees#ref351766) - [References](https://www.britannica.com/money/mutual-fund-fees#ref2234973-references) Read More [ How to choose mutual funds that fit your goals](https://www.britannica.com/money/mutual-fund-selection) [ Bond funds: Know the types before you choose](https://www.britannica.com/money/bond-fund-types-list) [ Volatility index ETFs and ETNs: Understanding the risks](https://www.britannica.com/money/volatility-etfs-explained) Table Of Contents  Open full sized image A slice for the management team. © PicturePartners—iStock/Getty Images When you invest in a [mutual fund](https://www.britannica.com/money/what-are-mutual-funds), the fund’s management team allocates your investment across the stocks, [bonds](https://www.britannica.com/money/bond-market-basics), and other assets in the fund. The team conducts research, monitors investments, and buys and sells stocks to meet investor contributions and withdrawals. Plus, the fund managers calculate the value of each share at the end of every trading day, market the fund, and perform other administrative duties. ## Key Points - Mutual fund fees vary widely, as some funds are more expensive to run. - Sales charges—known as “loads”—may come up front, on the back end, or might not be assessed if you hold a fund long enough. - Fees are included in every mutual fund’s prospectus. For all of this work, each mutual fund charges fees. The fees are calculated as an annual percentage of assets, although they come out on a prorated basis every trading day. Those fees, when added together and divided by the total assets in the fund, equal the fund’s expense ratio. The expense ratio helps you compare the costs of one fund to another. ## Types of annual fees - **Management fees.** The fund pays its portfolio manager and staff to buy and sell the investments in the fund. Management fees vary depending on the size of the fund and the strategy it pursues. A small fund with a complex strategy will have a much higher management fee than a giant fund that invests strictly according to a predetermined index. - **Marketing fees (12b-1 fees).** These go to the fund’s manager to promote the fund or compensate the people who sell the fund. Not all funds carry these fees. They can be significant, depending on where you buy a fund or who you buy it from. For example, mutual funds purchased from a brokerage firm’s mutual fund “supermarket” may carry higher 12b-1 fees, as might funds bought through a [financial advisor](https://www.britannica.com/money/using-a-financial-advisor). - **Administrative and other fees.** These cover the fund’s expenses related to asset protection, trading, legal, and accounting services. ## Mutual fund sales loads When you buy a mutual fund through a broker or financial advisor, you’ll likely pay a sales load, or sales charge. There are two primary types of sales loads. One is a front-end sales load, which you pay when you invest in a fund. This is a percentage of assets that comes out of the money you’re investing. The other is a back-end or deferred sales load. You pay that when you sell your shares. Back-end loads come in many forms, with some expiring if you hold your shares long enough (five years is a common holding period requirement to avoid a load). Fund shares with a back-end load often charge a higher 12b-1 fee. ## Fees for no-load mutual funds Many investors choose to buy mutual funds directly from a fund company or an online broker to reduce fees and eliminate sales commissions. But they still face some fees. Here are some common ones to watch for: - **Redemption fees.** When you sell your shares, your fund may charge a redemption fee. Although it works like a back-end sales load, it isn’t considered one, and is paid directly to the fund. It’s imposed to prevent you from moving in and out of a fund too rapidly, which raises the costs of managing the fund. - **Exchange fees.** Some funds charge these fees if they exchange their assets to another fund offered by the same fund group. Exchange fees are also imposed to prevent you from moving in and out of a fund too rapidly. - **Account fees.** Some funds impose these fees to cover the maintenance of your accounts. Account fees are often assessed if the dollar value of your account falls below a certain level. - **Purchase fees.** These fees are like a front-end sales load. But they’re different because a purchase fee goes to the fund, rather than to the broker or advisor who sold it to you. ## Expense ratio example: How fees affect returns Let’s say you buy\$10,000 of a mutual fund from your broker. The fund charges you: - **5%** front-end sales load - **0\.50%** management fee - **0\.35%** 12b-1 fee - Administrative and other costs of **0\.10%** per year Let’s assume the fund has a zero return for the first year, neither gaining nor losing any money. After the sales charge of \$500 was assessed, the fund began that first day at \$9,500. The additional fees, which total 0.95% (the expense ratio), would be: \$9,500 x 0.0095 = **\$90.25** At the end of the year, you would have spent \$590.25 on fees, leaving you with \$9,409.75. Although the 5% load would be a one-time charge, the other fees would be ongoing. That’s why front-end loads aren’t counted in the expense ratio. This example—an expense ratio of 0.95%—is on the high side. In 2021, the average expense ratio of actively managed equity mutual funds was 0.68%, according to the Investment Company Institute. In contrast, the average expense ratio for mutual funds that track a major index, such as the [S\&P 500](https://www.britannica.com/money/SandP-500), was 0.06%. ## The bottom line Over time, the performance of your investments is what’s important. But while the markets are uncertain, the fees charged by your fund [are spelled out in the fund’s prospectus](https://www.britannica.com/money/prospectus-definition). They are unlikely to change, and their impact is a sure thing. There are many tools to help you understand the impact of fees over time. And there are several ways to compare the cost, strategy, and past performance of similar funds. When reviewing the fees of a mutual fund, make sure they go toward services—such as experienced management or the [guidance of a financial advisor](https://www.britannica.com/money/financial-advisor-types)—that you believe will pay for themselves in the form of better investment performance over time. ## References - [Mutual Fund Fees and Expenses](https://www.investor.gov/introduction-investing/investing-basics/glossary/mutual-fund-fees-and-expenses) \| investor.gov - [Trends in the Expenses and Fees of Funds, 2021](https://www.ici.org/system/files/2022-03/per28-02_2.pdf) \| ici.org - [FINRA Fund Analyzer](https://tools.finra.org/fund_analyzer/) \| tools.finra.org [](https://www.britannica.com/money) [About Us](https://www.britannica.com/money/about)[Privacy Policy](https://corporate.britannica.com/privacy-policy-2)[Terms & Conditions](https://corporate.britannica.com/termsofuse.html) © 2026 Encyclopædia Britannica, Inc.

 Open full sized image Some investments for your shopping basket. © Robert Knapp—iStock/Getty Images, © tupungato—iStock/Getty Images, © structuresxx—iStock/Getty Images; Photo composite Encyclopædia Britannica, Inc. Exchange-traded funds (ETFs) are ready-made collections of stocks, bonds, and/or other assets that trade throughout the day on an exchange. You might buy an ETF as a way to [invest in an index](https://www.britannica.com/money/index-fund-investing), [market sector](https://www.britannica.com/money/market-cycle-investing), or other specific strategy. With ETFs, you can trade in or out of the market at a moment’s notice. ## Key Points - ETFs have grown in popularity over the last 20 years because of their low cost and simplicity. - Many ETFs are passively managed, targeting the return profile of an index. - Some ETFs are more exotic, using derivatives to track the inverse of an index, or they may offer leveraged exposure. ## ETFs: Like mutual funds, but different ETFs are similar to [mutual funds](https://www.britannica.com/money/what-are-mutual-funds) in that you can easily buy a diversified but focused basket of securities. Different ETFs focus on different asset classes, such as stocks, bonds, or commodities. Some ETFs invest in specific niche sectors or markets. Some look to capture returns that reflect major market indexes. A few attempt to deliver returns that are the opposite of a particular index. Most ETFs are set up to track an index, such as the [S\&P 500](https://www.britannica.com/money/SandP-500), making them similar in nature to index mutual funds. But here’s where ETFs and mutual funds diverge: A mutual fund sets its settlement price once—and only once—per day, at what’s called the net asset value (NAV). All customer flows in and out of the fund (i.e., purchases and redemptions) take place at the day’s NAV. In contrast, ETFs trade like stocks. Bids and offers are posted throughout the trading day, which means you can buy or sell whenever the market is open, and you can also track the value of your ETF investment down to the penny. ## Why are ETFs growing in popularity? When ETFs first launched at the beginning of the 21st century, they were primarily popular with traders, who took advantage of the ability to buy and sell them throughout the day. But ETFs have since become popular with more casual investors because of their simplicity, ease of trading, and low fees. Because most ETFs are based on indexes, the larger ETFs can charge very low management fees compared with the average mutual fund. But mutual funds still hold the lion’s share of assets. Although the total ETF investment in the U.S. grew from \$1 trillion in 2012 to \$7.2 trillion in 2022, according to the Investment Company Institute, U.S.-registered mutual funds hold \$27 trillion (as of 2022). ## What are the types of ETFs? **Index ETFs**—byfar the most common ETF strategy—invest in broad indexes that can include hundreds or even thousands of stocks, such as the Russell 3000. Index ETFs can offer an easy way to invest in the market as a whole. But beyond the index-based universe, there’s a wide array of ETFs that target specific stock sectors and industries, bonds and other fixed-income securities, emerging markets, and more. Here’s a sampling: - **Sector/industry ETFs.** These ETFs own the stocks in a specific business or industry within a particular index. For example, to mirror the S\&P 500’s technology sector, an investor might look at the **Technology Select Sector SPDR Fund ETF** (XLK) or other tech sector ETF. - **Fixed-income ETFs.** These ETFs invest in a specific type of bond and/or risk profile to deliver regular income. Many investors use fixed-income ETFs as part of a [diversified portfolio](https://www.britannica.com/money/portfolio-diversification-benefits) of stocks and bonds. - **Commodities ETFs.** Some invest in a single commodity such as corn, crude oil, or gold, either through physical storage or commodity [futures contracts](https://www.britannica.com/money/what-is-a-futures-contract). Others invest in a basket of different commodities to allow investors to take advantage of general price changes. - **Inverse ETFs.** Using financial derivatives such as options and futures contracts, these ETFs seek to capture the *opposite* performance from what a given index is delivering. If that index is going up, then these ETFs are designed to go down, and vice versa. Inverse ETFs are popular among investors who expect a market downturn. But they can charge high fees, and they don’t always hit their targets precisely. - **Leveraged ETFs.** These ETFs also use futures and options contracts—which trade on margin (essentially borrowed money)—as a way of amplifying returns. For example, an ETF might target double (2x) or triple (3x) the daily return on the S\&P 500 Index. But leverage is a double-edged sword. Losses are also magnified by 2x or 3x (or more). - **International and emerging markets ETFs.** These ETFs invest in [market and sector indexes across the globe](https://www.britannica.com/money/international-stock-investing). An ETF might diversify across regions, or it might target only one region, such as Europe. Or it might invest only in stocks from a single country like Japan. Some ETFs concentrate on [emerging markets and developing economies](https://www.britannica.com/money/what-is-emerging-market-investing). - **Factor-based (aka “smart-beta” and “rules-based”) ETFs.** This is one of the newer forms of ETF. These funds are managed to strategically diverge from an index’s precise weightings. Smart-beta funds try to “beat the index” by shifting allocations among the index components toward those with greater upside potential. For example, a fund might lean toward stocks with lower volatility or higher dividend yields, or it might follow the charts and favor stocks with upside momentum. Note: Although the term exchange-traded fund (ETF) is commonly used to describe these products, some—particularly those that use derivatives to target the performance of an index—are technically exchange-traded notes (ETNs). ETFs are backed by the shares in a fund; ETNs are a tradable loan issued by a bank or other financial entity. Regardless of the structure—ETF or ETN—it’s important to [read the fund prospectus](https://www.britannica.com/money/prospectus-definition) before investing. ## The bottom line With more than 8,500 ETFs to choose from globally (as of 2022), if you have investable assets, there’s probably an ETF or two worth considering. ETFs offer an easy, cost-effective way to build a [highly diversified portfolio](https://www.britannica.com/money/investment-types) and tweak it as necessary over time. And these days, most online brokers allow their clients to buy and sell ETFs commission free. You just need to know what your objectives are: widespread diversification, targeted exposure, a global reach, or something in between. Happy ETF hunting\! ## References - [Investor Bulletin: Exchange-Traded Funds (ETFs)](https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-24) \| investor.gov - [Investment Company Fact Book](https://www.icifactbook.org/) \| icifactbook.org