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What is an ETF?

ETF stands for exchange-traded fund. ETFs are a basket of investments (for example: stocks and bonds) bundled into a fund that’s traded on an exchange. Exchange-Traded means you can buy and sell ETFs on public stock exchanges like the Nasdaq or the New York Stock Exchange. These bundles of stocks, bonds, and cash usually track an index, or group of securities with something in common.

You can buy and sell ETFs in a similar way to stocks, for instance, ETFs are bought and sold on exchanges, through a broker, and can trade throughout the day. While ETFs themselves are not stocks or equities, they are pools of stocks or other investments and equities available to investors through the stock market.

One of the reasons that investors sometimes buy ETFs instead of individual stocks is that it is easier to diversify their investments through ETFs. Say, for example, you want to invest in the robotics industry. You could research big companies within the robotics industry and buy as many stocks you want. However, this strategy is time-consuming and potentially costly when you take into account the brokerage fees associated with buying each individual stock.

ETFs do have management fees, but you don’t pay extra to cover them. You can learn more here.

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