What Is Personal FinanceETF stands for exchange-traded fund. It holds a basket of investments, similar to a mutual fund, but trades on an exchange the same way a share of stock does.
What makes it "exchange-traded"
A traditional mutual fund prices once a day, after the market closes, and you buy or sell at that single price. An ETF trades throughout the market's open hours at a price that moves in real time, the same as a stock. You place an order through a brokerage account, and it fills at whatever the market price is at that moment, not at a single end-of-day number.
What's inside one
An ETF's holdings depend entirely on what it's built to track. Many ETFs are built the same way as the index funds covered in what is an index fund: a broad basket of stocks or bonds tracking a market index. Others track a narrower slice, like a single sector, a specific country, or a commodity. The name and the fund's own fact sheet tell you what's inside. Two ETFs with similar-sounding names sometimes hold entirely different things.
What it costs to hold one
Every ETF charges an expense ratio, an annual fee taken as a small percentage of your investment, disclosed in the fund's prospectus. A broad, simple ETF typically charges less than a narrow or specialized one. Most major brokers no longer charge a separate commission to buy or sell ETF shares, though a small gap between the buy and sell price (the bid-ask spread) still exists on every trade.
What you need to buy one
Buying an ETF requires a brokerage or investment account, not a special ETF-specific account. See investment account options or a robo-advisor if you'd rather have a fund selection handled for you within a chosen risk level. Once the account is funded, you search for the ETF by its ticker symbol and place an order like you would for a stock.
ETF or mutual fund: does the difference matter
For a long-term investor who isn't trading during the day, the practical difference between a broad-market ETF and an equivalent index mutual fund is often small. It matters more if you want to trade during market hours, want a lower minimum investment (many ETFs let you buy a single share, some mutual funds require a minimum), or care about the tax treatment in your specific account type.
Nothing above recommends a specific ETF, sector, or provider. Check the expense ratio, what the fund holds, and how it fits your own timeline before investing.