Glossary
ETF (Exchange-Traded Fund)
An ETF (exchange-traded fund) is a pooled investment fund whose shares trade on a stock exchange throughout the day, most often tracking an index at low cost.
Like a mutual fund, an ETF holds a basket of securities and offers instant diversification; unlike a mutual fund, it is bought and sold at market prices any time the exchange is open. Most ETFs are index funds, and their structure tends to make them tax-efficient in taxable accounts because they rarely distribute capital gains.
Why it matters in practice
For long-term investors the ETF-versus-mutual-fund choice usually matters less than what is inside: the index tracked and the expense ratio. The intraday tradability is convenient but also an invitation to trade more than is useful. In taxable accounts the tax efficiency is a genuine, recurring advantage.
Related terms: Mutual Fund · Index Fund · Expense Ratio · Passive Investing · Diversification