ETFs
Exchange-traded baskets that give instant diversification at low cost.
The ETF wrapper is not the investment strategy
An ETF is a vehicle. What matters economically is what the fund owns and how it is managed.
Two ETFs can trade the same way on an exchange while giving investors completely different exposure. One may track the total U.S. stock market, another may hold short-term Treasury securities, and another may use options, leverage or commodities.
That makes the label "ETF" much less important than the fund's underlying holdings, index or strategy.
What to compare
Look beyond the expense ratio. Compare what the fund actually owns, how concentrated it is, how closely it follows its stated benchmark or strategy, trading spreads, tax characteristics and whether another fund in the portfolio already provides substantially the same exposure.
Common mistakes
- ×Comparing funds on ticker familiarity instead of expense ratio and index
- ×Trading in the first and last minutes of the session when spreads are widest
- ×Assuming two funds in the same category hold the same securities
- ×Stacking several funds that overlap on the same large holdings