ETF (Exchange-Traded Fund).
In plain English
An ETF is a fund that holds a collection of stocks, bonds, or other assets. When you buy one share of an ETF, you own a tiny slice of everything the fund holds. ETFs trade on the stock market like regular shares, so the price moves throughout the day. Most are passively managed, meaning they automatically track an index instead of paying a manager to pick stocks.
01Why it matters
ETFs let a regular person own thousands of companies at once for very low cost. A total-market ETF often charges 0.03% per year. That's $3 per year on a $10,000 investment. That low cost compounds in your favor over decades.
02The math, step by step
VTI (a Vanguard total US market ETF) holds about 3,600 US companies in one share. If you buy one share, you own a tiny slice of Apple, Microsoft, the local utility company, and 3,597 others. The annual fee is 0.03%. Compare to a hand-picked mutual fund charging 1%. Over 30 years, that fee difference alone can cost a six-figure amount on a normal portfolio.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Buying a stock = owning one company. Buying an ETF = owning a slice of every company in the fund. ETFs are far more diversified, which is why most people are better off in broad ETFs than picking individual stocks.
Plain-English answers from our glossary. Receipts included. Never advice.
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