Exchange-traded funds (ETFs) are index funds or trusts that are listed on an exchange and can be traded like a single stock. The benefits of these low-expense, passively managed portfolios include:
- Trading flexibility. Since ETFs trade on the stock exchanges, they can be bought and sold throughout the day. Exchange-traded funds also let you use limit and stop-loss orders, buy on margin, and sell short.
- Diversity. A single investment in an exchange-traded fund gives you a diversified portfolio of stocks. They can be especially helpful if you're looking for diversified exposure to certain industries, sectors, geographic regions or investment themes.
- Tax efficiency. Exchange-traded funds minimize capital gains due to their in-kind creation and redemption process.
- Transparency. While a closed-end fund or a mutual fund typically publishes its holdings only semi-annually or quarterly, ETFs publish them daily.
Exchange-traded funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost.
Contact your financial advisor to learn more about the advantages and disadvantages of investing in exchange-traded funds (ETFs) and to discuss whether ETFs fit within your overall investment portfolio.
Exchange-traded funds are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.
