What is an ETF?

An ETF (Exchange-Traded Fund) is a type of security made up of a bundle of assets that track a particular securities index, commodity, bond type, or a grouping of assets. They're bought and sold on securities exchanges throughout a trading day like stocks. The price of an ETF is based on market supply and demand, and often trade at a price higher or lower than the ETF's Net Asset Value (NAV). Depending on your goals, there are several types of ETFs that could help you generate income, grow your investment dollars, or offset risk in your portfolio.

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Pros and cons of an Exchange-Traded Fund

ETFs are either passively or actively managed. Generally, the goal of passive ETFs is to duplicate the performance of a broader index, such as the S&P 500 or a specific sector. By contrast, managers of actively managed ETFs pursue better-than-market returns. Here are some notable advantages and disadvantages of holding ETFs in your portfolio:

ETFs have many types of sectors, styles, industries, even countries, which facilitates investing in just about any market segment you want. However, some sectors could limit you to a narrow group of equities in the market index.

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