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  • Apr 28, 2008 3:11 pm US/Pacific
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What Are ETF's?

 QUESTION:  I keep hearing people talk about investing in ETF's.  What are they?

ANSWER:  A brief discussion of a couple different investment vehicles is probably warranted here. A mutual fund is an investment vehicle that pools investors money, and then invests that money in a number of different investments. Mutual funds can invest in stocks, bonds, commodities, real estate, etc. When an investor buys a share of a mutual fund, they own a proportionate share of all the underlying holdings of the mutual fund they purchased. Most mutual funds price once a day, at the
end of the day. The mutual fund values each of its holdings and publishes the funds net asset value or "NAV" each day. This is the price that each investor can buy or sell at. An exchange traded fund is similar to a mutual fund in that the investor owns a proportionate amount of the underlying holdings of the exchange traded fund. However, one major difference is that exchange traded fund or "ETF" trades throughout the day, similar to a stock. This can give investors who are looking to "trade" their holdings a more "real time" view of what their holdings are worth. Not just a price at the end of the day that a mutual fund would publish. I believe both can have a place in a well balanced portfolio. 
 
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Money Matters is provided by:

David Schauer, CFA, MSFA, CFP®
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