An ETF, or exchange-traded fund, is a basket of securities — stocks, bonds, or commodities — that trades on a stock exchange just like a single stock. Most ETFs track a market index like the S&P 500, making them one of the easiest and most affordable ways to invest.
What Is an ETF?
ETF stands for exchange-traded fund. When you buy one share of an ETF, you’re instantly invested in every security inside that fund — which could be dozens or even hundreds of companies at once. It’s one of the most beginner-friendly ways to build a diversified portfolio without having to pick individual stocks.
How Do ETFs Work?
ETFs pool money from many investors to build a portfolio of assets. A fund manager’s job isn’t to pick winners — it’s to make sure the fund stays on track with whatever index or strategy it’s designed to follow. An S&P 500 ETF, for example, only buys or sells stocks when the index itself adds or removes a company.
Shares trade on stock exchanges throughout the day, so you can buy or sell at any time the market is open — something traditional mutual funds don’t allow.
What Can ETFs Hold?
ETFs can include stocks, bonds, commodities like gold, real estate, and more — as long as the SEC regulates the underlying assets. Most focus on stocks or bonds, but Bitcoin ETFs were recently approved by regulators, opening up cryptocurrency exposure as well.
What Are the Different Types of ETFs?
There are ETFs built for nearly every investment strategy. Here are the most common types:
- Index ETFs track a specific market benchmark, like the S&P 500 or Nasdaq-100.
- Fixed-Income ETFs invest in bonds and other income-generating securities like preferred stocks.
- Commodity ETFs hold physical assets or futures contracts for things like gold, oil, or agriculture.
- International ETFs give you exposure to stocks in foreign markets.
- Sector ETFs focus on a single industry, like technology, healthcare, or energy.
- Dividend ETFs target stocks that pay higher-than-average dividends.
- ESG ETFs invest in companies that score well on environmental, social, and governance metrics.
- Actively Managed ETFs have a fund manager making portfolio decisions, rather than tracking an index.
- Bitcoin ETFs are among the newest options, recently approved by the SEC for U.S. investors.
How Are ETFs Different From Mutual Funds?
The biggest difference is how and when they trade. ETFs trade on exchanges throughout the day at live market prices. Mutual funds are priced once per day after the market closes and are purchased directly from a fund company.
ETFs are also usually passively managed and lower cost, while mutual funds tend to be actively managed — meaning a manager is making frequent buy and sell decisions, which drives up fees. Both require a brokerage account to access.
What Are the Benefits of ETFs?
ETFs have a lot going for them, especially for newer investors:
- Instant diversification. One share gives you exposure to an entire index or sector.
- Low costs. Expense ratios are typically a fraction of what actively managed mutual funds charge.
- Flexibility. You can buy and sell shares any time the market is open, just like stocks.
- Tax efficiency. ETFs generally generate fewer taxable events than mutual funds, which can help in taxable accounts.
What Are the Risks of ETFs?
ETFs aren’t risk-free. A few things to keep in mind:
- Market risk. If the index or sector an ETF tracks declines, so does your investment.
- Lower dividend yields. Broad market ETFs tend to have modest yields, though dividend-focused ETFs are an option if income is a priority.
- Limited diversification in some funds. Sector ETFs concentrate your exposure in one industry rather than the broader market.
- Fees still exist. They’re small, but ETFs do charge expense ratios. Individual stocks, by comparison, have no ongoing fee.
How Do You Buy an ETF?
Buying an ETF is just like buying a stock. You’ll need a brokerage account first — to open one, you’ll typically provide your name, address, date of birth, Social Security number, and bank details. Once your account is funded, simply search for the ETF you want and place a trade.
If you plan to invest frequently or in smaller amounts, look for a zero-commission broker. Most major brokerages — including Fidelity, Schwab, and Vanguard — now offer commission-free ETF trading.
Before buying, compare each ETF’s expense ratio, what it holds, and how it’s performed over time. Even ETFs that track the same index can differ slightly in cost and structure.
Popular ETFs To Consider
If you’re just getting started, these are some of the most widely held ETFs on the market. Data is as of April 1, 2026.
SPDR S&P 500 ETF Trust (SPY)
The first and most traded ETF in the U.S., tracking the S&P 500 index.
- Assets Under Management: $647.55 billion
- Expense Ratio: 0.09%
- Dividend Yield: 1.16%
- Year-to-Date Return: -4.79%
Vanguard S&P 500 ETF (VOO)
A low-cost S&P 500 tracker and the largest ETF in the world by assets.
- Assets Under Management: $872 billion
- Expense Ratio: 0.03%
- Dividend Yield: 1.11%
- Year-to-Date Return: -4.79%
iShares Core S&P 500 ETF (IVV)
Another low-cost S&P 500 option from BlackRock, nearly identical to VOO in structure and holdings.
- Assets Under Management: ~$860 billion
- Expense Ratio: 0.03%
- Dividend Yield: ~1.13%
- Year-to-Date Return: ~-4.79%
Vanguard Total Stock Market ETF (VTI)
Tracks the entire U.S. stock market — not just the top 500 companies.
- Assets Under Management: $2.09 trillion
- Expense Ratio: 0.03%
- Dividend Yield: 1.30%
- Year-to-Date Return: -6.70%
Invesco QQQ Trust (QQQ)
Tracks the Nasdaq-100, heavily weighted toward technology and growth companies.
- Assets Under Management: $395 billion
- Expense Ratio: 0.20%
- Dividend Yield: 0.50%
- Year-to-Date Return: -4.20%
SPDR Dow Jones Industrial Average ETF Trust (DIA)
Tracks the 30 blue-chip companies that make up the Dow Jones Industrial Average.
- Assets Under Management: ~$41 billion
- Expense Ratio: 0.16%
- Dividend Yield: ~1.39%
- Year-to-Date Return: 1.20%
How Do You Choose the Right ETF?
Start by defining your goal. Are you looking for broad market growth, income from dividends, or exposure to a specific sector? Once you know what you’re after, compare expense ratios, what the fund actually holds, and its historical performance.
For most beginners, a single broad market ETF — like VOO or VTI — is all you need to get started. From there, you can layer in more targeted funds as your knowledge and portfolio grow.
All ETF data is subject to change. This article is for informational purposes only and does not constitute financial advice.
Andrew Lisa and Sean Dennison contributed to the reporting for this article.
Data is accurate as of April 1, 2026 and is subject to change. ETF information was sourced from Yahoo Finance.