Instead of painstakingly selecting single stocks to craft a portfolio, investors can diversify their investments with easy-to-trade, low-cost exchange traded funds.
ETFs are a type of investment fund that trade on stock exchanges, like stocks, writes John Persinos for Investing Daily. [4 Common ETF Questions Answered]
Most ETFs passively track a benchmark index, such as the Standard & Poor’s 500, Dow Jones Industrial or Nasdaq Composite, diversifying your money across hundreds, if not thousands, of stocks. These ETFs will only change their holdings when the underlying index makes changes. [ETF Basics]
Research has shown that the average investor earns less than the market average as people unsuccessfully try to play and beat the market. With a passive index-based ETF, you stick to market moves.
Investors pay low management fees with ETFs, compared to traditional mutual funds. As passive products, ETFs typically only have to reflect the performance of a benchmark, so there is no need to pay a team of active managers.
Moreover, some may also find that brokerage platforms offer commission-free trades on select ETFs. [Six Popular Commission-Free ETF Trading Platforms]