Exchange-Traded Funds (ETFs) are investment vehicles that generally track a market index, such as the S&P 500® Index. ETFs trade on major exchanges like individual stocks, so their prices may vary throughout the day. There are thousands of ETFs available for investing, with varying complexities and market risks.
DiversificationETFs allow you to invest in a broad variety of securities. For example, if you invest in an ETF that tracks the 500® Index, your money is spread across the 500 companies that comprise the index. This means you also spread the investment risk among all the securities that compose a particular index.1
Tax EfficiencyUnlike mutual funds, ETFs generally do not have annual capital gains distributions that are the result of the active buying and selling of securities in a fund. Instead, any gain or loss is realized when you sell the ETF.
CostETFs generally have lower operating expenses than mutual funds because most ETFs are not actively managed and, therefore, do not incur the internal costs of buying and selling securities. Similar to other investments available in the marketplace, there may be sales commissions associated with the purchase and sale of ETFs.
1Diversification cannot assure a profit or protect against losses in the fund.
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