November 10, 2008 -
ETF stands for exchange-traded funds. ETF's are a lot like mutual funds but trade throughout the day very much like normal stocks. ETF's are index-based, representing baskets of stocks, bonds or other assets and are often lower-cost than comparable index-based mutual funds.
Unlike open-ended funds, which buy back their own shares, ETF owners can sell their funds to anyone in the stock market who is willing to buy them. Also higher levels of transparency make an ETF investment trade much closer to its actual value than a regular mutual fund.
For a long time mutual funds have made it easy for ordinary investors to invest modest amounts of capital to achieve a diversified portfolio of stocks, but ETF are a new way to achieve that same goal with trading flexibility not found with mutual funds.
