An exchange-traded fund (ETF) is a type of pooled investment security that tracks an index, sector, commodity, or other assets, but can be purchased or sold on a stock exchange the same as a regular stock. ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually. They can contain all types of investments, including stocks, commodities, or bonds, and can be U.S.-only or international.

<aside> <img src="/icons/reorder_green.svg" alt="/icons/reorder_green.svg" width="40px" /> CONTENTS

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<aside> <img src="/icons/cursor-button_green.svg" alt="/icons/cursor-button_green.svg" width="40px" /> USEFUL WEBSITES

Yahoo Finance - free finance news and data

Investopedia - covers all information about finance

VettaFi ETF database - ETF database and screener

https://www.etfrc.com/funds/overlap.php - see which holdings 2 etfs have in common along with differences and exposure

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<aside> <img src="/icons/paste_green.svg" alt="/icons/paste_green.svg" width="40px" /> KEY NOTES

An exchange-traded fund (ETF) is a basket of securities that trade on an exchange, just like a stock.
ETF share prices fluctuate all day as the ETF is bought and sold; this is different from mutual funds that only trade once a day after the market closes.
ETFs can contain all types of investments including stocks, commodities, or bonds; some offer U.S. only holdings, while others are international.
ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually or buying mutual funds
ETFs offer you better control of your investments compared to mutual funds
An ETF can guard against volatility (up to a certain point) if certain stocks within the ETF fall. This removal of company-specific risk is the biggest draw for most ETF investors.

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<aside> <img src="/icons/movie-clapboard-play_green.svg" alt="/icons/movie-clapboard-play_green.svg" width="40px" /> VIDEOS

https://youtu.be/l_O4Xvv_XZI?t=186

https://youtu.be/kqr-h-pmky4

https://youtu.be/sCqox8Mfm58

https://www.youtube.com/watch?v=7zf7zob1Xdc

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<aside> <img src="/icons/link_green.svg" alt="/icons/link_green.svg" width="40px" /> RELATED ARTICLES

Exchange-Traded Fund (ETF) Explanation With Pros and Cons

Make the right ETF selection: tips and tricks

Types of ETFs

ETF Investment Strategies: How to Pick an ETF

Building an All-ETF Portfolio

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Understanding ETFs

ETFs work by pooling a sum of money from many people and using them to invest in multiple assets. Therefore, an ETF is a type of fund that holds multiple assets, rather than only one like a stock does. Because there are multiple assets within an ETF, they can be a popular choice for diversification. The fundamentals of how ETFs work is similar to mutual funds. However, unlike mutual funds, ETFs are traded on an exchange just like stocks.

The ability to trade ETFs throughout the day provides investors with the ability to buy and sell at any time the market is open. This makes ETFs very liquid. ETF share prices fluctuate all day as the ETF is bought and sold. This means that ETFs are subject to market fluctuations, and the value of the underlying assets can rise or fall rapidly. An ETF can own hundreds or thousands of stocks across various industries, or it could be isolated to one particular industry or sector. Some funds focus on only U.S. offerings, while others can be globally.

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How basic funds work: Price of a stock C is $100. If person A and person B contributes $50 dollar each into a fund, they can now afford to buy 1 share of stock C. The profits/loss that occurs on the stock price would be divided equally among the 2 investors.

How ETFs work: Price of stock C, D and E is $100 respectively, making total cost to own 3 stocks $300. If person A and person B were to contribute $150 each, they are able to gain access to all 3 stocks while only investing half of what they should have invested if they were to buy the stocks individually.

Types of ETFs

Active vs. Passive ETFs

ETFs can be actively managed or passively managed.

Passively managed ETFs are designed to track an underlying index or benchmark. These ETFs seek to replicate the performance of the index they are tracking, rather than trying to outperform it. For example, an S&P 500 ETF would aim to track the performance of the S&P 500 index.
Actively managed ETFs are managed by professional managers who aim to outperform the market. These managers may use a variety of investment strategies, such as stock picking, market timing, or short selling, to try to beat the market.

Passively managed ETFs usually have lower expense ratios than actively managed ETFs, since they require less research and management. However, actively managed ETFs may offer the potential for higher returns if the manager is able to successfully outperform the market.

It's important to carefully consider the fees and investment strategy of any ETF before investing. For many investors, passively managed ETFs may offer a cost-effective way to invest in a diversified portfolio of assets. However, for investors who are willing to take on more risk and pay higher fees, actively managed ETFs may be worth considering.

Each ETF can have different requirements before it is included in the fund. E.g an ETF that solely focuses on an industry would only buy assets from that said industry. However, it could also have additional requirements such as e.g. consistent growth for the past 5 years or the top 50 companies in that industry. It is important to look for an ETF that fits your requirements and needs.

Major Types

Dividend ETFs

Dividend ETFs have higher dividend yields
This ETF invest in companies that pays out dividends
Lower ETF price growth compared to growth and value ETFs
Typically passively managed
offer potential capital gains from increases in the prices of the stocks your ETF owns, plus dividends paid out by those stocks.
dividend can be paid out monthly, quarterly or yearly
Read more here

Growth ETFs

Higher returns than dividend ETFs
invest in a basket of stocks whose underlying companies have the potential for rapid growth
Companies with strong fundamentals
offer capital gain from an increase in the price of ETF
Read more here

Value ETFs

Value ETFs look to invest primarily in the stocks of companies considered undervalued, using metrics such as the price-to-earnings (P/E) ratio compared to either their peers or the broader market
Often more volatile
higher risk, higher reward
typically actively manage and therefore higher expense ratio
Read more here

Why i personally would not recommend dividend ETFs for people with small capital. Dividend ETFs have lower ETF price growth compared to growth and value ETFs and typically offer lower returns than growth ETFs. This may not be suitable for small capital investors who are looking for higher returns and growth.