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The use of exchange traded funds (ETFs) has increased rapidly in recent years. They’ve joined mutual funds and individual stocks and bonds as mainstream investing tools and their popularity continues to grow. If you're just getting started with ETFs, here are a few basics to help get you oriented on what these funds are, and how you can decide if these convenient, low-cost, flexible funds are right for you.

 

ETFs and mutual funds are similar in many ways, with several key differences.

1. ETFs and mutual funds are similar in many ways, with several key differences.

Like mutual funds, ETFs are a collection of securities, such as stocks or bonds. Both ETFs and mutual funds make it easy to gain exposures to a wide range of markets, both large and small.

One key difference between ETFs and mutual funds is how they are bought and sold. Mutual fund shares are priced once a day after the market close (4 pm ET) while ETFs, on the other hand, can be bought and sold throughout the day when the market is open, just like a stock.

The structure of ETFs means they also have lower fees than traditional mutual funds and this structure also makes them potentially more tax-efficient.

You can learn more about the similarities and differences between ETFs and mutual funds here.

 

ETFs have been around for a long time.

2. ETFs have been around for a long time.

ETFs first hit the market in 1993 and they’ve come a long way since then. The ETF marketplace has grown from fewer than $100 billion in ETF assets to over $4.7 trillion across an ever-expanding number of products.1

As the industry has grown, so has the variety of ETFs on the market and the number of investors using them. Today, one in three U.S. investors owns an ETF, according to BlackRock’s latest ETF Pulse Survey. That’s up from one in four last year and by 2020, it’s expected that half of all investors will make ETFs part of how they build their portfolios.2

 

iShares ETFs are cheaper to own than a typical mutual fund.

3. iShares ETFs are cheaper to own than a
typical mutual fund.

The cost of your investments can have a direct impact on your bottom line. In short, investment fees and taxes matter. Many investors are drawn to ETFs because they're cheaper to own than the typical mutual fund. On average, iShares ETFs cost ⅓ as much as the typical mutual fund.3 And if taxes are a concern, the average tax costs for iShares ETFs are about ½ those of the average active mutual fund.4 Year after year, these savings can really add up. The result? ETFs may help you keep more of what you earn.

 

iShares ETFs come in virtually any flavor you can think of.

4. iShares ETFs come in virtually any "flavor" you can think of.

There are over 300 iShares ETFs designed to help with a wide range of investment goals:

  • Build a strong core for your portfolio at a low cost
  • Seek income through bonds, dividend-paying stocks or preferred stocks
  • Prepare for market turbulence
  • Invest internationally
  • Act on opportunities in specific sectors, industries or countries

Learn more about how to use ETFs here.

 

Choose your ETF provider as carefully as you choose your ETF.

5. Choose your ETF provider as carefully as you choose your ETF.

There are a lot of ETFs out there, but they aren't all created equal. Two ETFs may have similar names, but behave quite differently from each other. Factors such as sales commissions, management fees, the index an ETF tracks and how closely it tracks it, along with taxes and trading costs can all affect the performance and return of an ETF. When choosing a fund, you should also make sure you know your fund provider. Among the traits to look for are: a proven record of strong ETF expertise, a commitment to quality and a sustained record of performance.