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What is an ETF?

Simply put, an ETF is a collection (basket) of stocks. Hard stop. Now you know it. ...but read on if you want deeper understanding.

This collection is administered by a financial institution, and its composition is directed from an index (like SP500), or investment rules/guidelines that inform when trades are made.

The composition of an ETF's holdings is always transparent, and stated daily.  

(Unlike mutual funds, which report holdings on a lagged basis, or hedge funds, or family/private offices).

ETFs are different from stocks, 

in that a stock represents a claim on the future earnings of 1 (one) company, 

where an ETF is a basket/portfolio of many companies.

You're making a bet on the overall market opposed to the specifics of an individual company.  

ETFs are created by financial companies that buy underlying holdings, which are stocks, bonds, and other instruments (forwards, futures, options, derivatives, etc..), these are also priced in the market, and therefore the NAV and traded prices are always known, and can be transacted on.

The value (market price) of an ETF is readily known, they are listed on exchanges, are relatively liquid, and you can get access to via execution platforms.

ETFs also have a more advantageous tax structure for multiple reasons.  Stay tuned for content to be built out along this area, because tax implications are a serious consideration for overall total return of your portfolio and an individual.  

The largest implicit benefit of ETFs is diversification.  A tenet of MPT (Modern Portfolio Theory) is to exploit diversification to in essence "get a free lunch" by reducing a portfolio's overall "risk" for the same "expected return".  (Or alternatively presented, maximizing your expected return while optimizing for the "risk" inherent in the correlations of the asset returns that one can observe).

This is an expansive field of research, and a seminal contribution to what won a Nobel prize, so I don't want to over-simplify, and I urge you to continue outside research (as we continue to fill out and build content on this).


The really interesting element is that MPT is really part science and part 'art' - and for as mathematical and specific it is, soo much of its benefit is implicit on the user generating the correct inputs and assumptions.  

With all the technology and information out there, we think we can help people do this better, seeing the field clearer, and eliminating some dependence on middle-men who take value away from the users optimal needs.

Related questions

How/Where can I trade an ETF

You can trade (buy/sell) ETFs via any execution platform or brokerage account.  Some examples of banks that offer brokerage are Citi, Schwab, BofA, you can also use Robinhood (to trade with FREE transaction costs) or other sites.

Are there costs associated?

Yes, and see the "COSTS/FEES" section of this site, because it is a larger / more important topic area.  Costs/fees are things that can eat into your performance, and your performance is what we're here to help you shepherd.

Are there risks associated?

Of course, and all ETFs are different so carry slightly different risks.  Almost all of them will carry "market risk" or exposure to the market in general.  Others will have more country or region risk, or other.  ETFs are getting very specific, and some carry even greater risks (or drags on performance the investor should be aware of).  

Sign up to Beta-Test our tool

We're still a little ways away from launching our first cut at the tool.  It'll have a lot of features and functionality, but we'd love to hear from YOU, as to what you like/hate fine useful, or hard to understand.  For users signed up via our beta launch there will be perqs and additional rewards.

Overwhelmed much?

Yea we get it.  It's literally like jumping in the deep end.  As soon as you start talking about finances, it's like all or nothing.  

Don't worry, just know that the answer is no one will EVER know all about finance, because it's evolving, and there's some subjectivity.  Keep exploring at your pace, and hope this site and tools can assist.

Are there other things I can be doing?

Yes, and we're glad you asked.  You can check out what the commonly accepted schools of thought would say about your portfolio (via our tool), to know what the textbooks, and portfolio managers (saans 'special sauce'/ that 'art') would advise.  

At the very least, knowledge is power, and if you have your money with someone else, you could be paying them to perform poorer than you could on your own, and/or if your money is sitting in cash, you should assess your opportunity cost.