Exchange-traded funds are open-ended funds that can be bought and sold on a stock exchange. You can think of them as a hybrid version of both stocks and index funds. You buy them using a broker, just like you would to purchase a stock. They consist of a portfolio of securities that are designed to track different indexes, just like index funds.
The first ETF was launched in 1993. ETFs have become very popular with investors. According to BlackRock’s December 2013 industry highlights data, the ETF industry has captured $2.4 trillion in assets since 1993. There are almost 5,000 ETFs available.
Used appropriately, ETFs can permit you to assemble a globally diversified portfolio of stocks and bonds, in a suitable asset allocation, at a low cost. Unfortunately, ETFs can be a trap for the unwary. Here are some tips to avoid potential pitfalls:
Read the rest of the article at US News.