Exchange-Traded Fund (ETF)

An exchange-traded fund (ETF) is a basket of many investments, such as stocks or bonds, bundled into a single security that trades on an exchange like a regular stock. Buying one ETF share gives you instant exposure to everything inside it. Most ETFs track an index, such as the S&P 500, offering broad diversification at low cost.

Investors use ETFs to diversify cheaply and easily without picking individual stocks. Look at the expense ratio, since lower fees keep more of your returns, and check what the ETF actually holds. Broad index ETFs are a popular core holding for long-term investors because they spread risk across hundreds of companies in one purchase.

An S&P 500 ETF holds shares of about 500 large U.S. companies. By buying one share for a few hundred dollars, you gain a tiny stake in all of them at once, instead of buying each company separately.