What is an ETF?

You get a diversified collection of stocks and/or bonds, which can potentially help reduce risk compared to individual securities.

The funds are overseen by professional managers.

The risk profile of an ETF is derived from its underlying holdings, as with mutual funds.

ETFs typically cost less than comparable mutual funds (⅓ the cost, on average), and there are no hidden loads or fees. (Your broker may charge a transaction fee, though many iShares ETFs are available commission-free at providers like Fidelity⁴). What’s more, your taxes may be significantly lower: tax costs for iShares ETFs on average are less than ½ those of the average mutual fund³.

Most ETFs seek to closely match the performance of an established stock or bond index, such as the S&P 500 or the Bloomberg Barclays U.S. Aggregate Bond Index. Actively managed mutual funds try to beat the index, which can be hard to do, especially after fees and taxes. iShares Core ETFs have outperformed more than 75% of their mutual fund peers on average over the past 10 years¹.

As with stocks, you can buy and sell ETFs at the market price whenever the market is open. Mutual fund shares are purchased directly from the fund at Net Asset Value (NAV) and priced once a day after the market closes.

Because ETFs usually aim to track an index, their holdings change relatively little over time – without the “style drift” that may surprise mutual fund investors.