Taking mutual funds to the next
level are exchange-traded funds, or ETFs. Much like mutual funds, ETFs
are single investments that have a large number of underlying stocks.
So, you make one purchase to basically own hundreds of different
stocks.
But, unlike a mutual fund, you don't have to go through a mutual fund company (like Fidelity or T. Rowe Price) to buy them, you can buy and sell ETFs on the stock exchange (or through eTrade or whatever), just like any other stock.
How convenient!
Most ETFs track a index, like the Dow or the S&P 500. So buying a share of the iShares S&P 500 (NYSE: IVV), for example, is like buying a little share of each of the companies in the S&P 500. It's 500 stocks for the price of one!
I like ETFs a lot because they make diversifying your portfolio easier and they're really easy to keep track of - great for less sophisticated investors.
But, unlike a mutual fund, you don't have to go through a mutual fund company (like Fidelity or T. Rowe Price) to buy them, you can buy and sell ETFs on the stock exchange (or through eTrade or whatever), just like any other stock.
How convenient!
Most ETFs track a index, like the Dow or the S&P 500. So buying a share of the iShares S&P 500 (NYSE: IVV), for example, is like buying a little share of each of the companies in the S&P 500. It's 500 stocks for the price of one!
I like ETFs a lot because they make diversifying your portfolio easier and they're really easy to keep track of - great for less sophisticated investors.
**Rich Girl Lingo is a periodic feature of The Next Rich Girl, where I try to break down the financial terms that we all need to know if we're going to get rich. Check out a few other entries: Stocks, Bonds, Bears and Bulls
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