ETF is a basket of securities you buy or sell on an exchange like a stock. ETFs are similar to mutual funds in that they are a combination of various investment assets chosen and maintained by a particular management strategy. However, ETFs differ from mutual funds in that they are bought and sold on the open market while mutual funds are bought and sold based on their price at day’s end.
ETFs will typically track an index, sector, commodity or other asset. A fund provider will buy the underlying assets that make up the fund, establish details like fees and the number of shares to be created, then the Securities and Exchange Commission will review and either approve or deny the plan. If approved, investors can start to buy shares in the ETF. Example: a popular ETF is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.
The last thing to note is what type of investments are most common since these are what you’ll research to build your portfolio from the ground up. There are the 5 most common types of ETF investments to build your balanced portfolio from scratch:
Commodities
Bonds
Stocks
International
Sectors.
Sven Franssen