What is a stock exchange-traded fund?

[Mwangi]

Explain to me, please.

[Kendi]

A stock ETF is a financial tool that tracks the performance of an index. The trading mechanism of this ETF is similar to that of the regular stock. However, unlike mutual funds, the prices of stock ETF change for hours on end instead of changing when the market is closing.

The stock ETF can pursue the funds in an individual sector. It can also track the index of an entire capital, such as the S&P 500. By following the index, you will get the chance to use several equities and minimize the risks associated with individual stocks. The capitals that you want to choose from are usually inexpensive, easy to use, and tax-efficient. You can also access them through different brokers.

In a stock ETF, you will gain revelation to many equities in a particular industry without the need to buy the individual stock. The risks that come with stocks from a specific company are minimized when you own different assets.

In the past, people would invest in ETF for a long time to make a profit. Things are different currently since you can trade the ETF like stocks in a stock exchange market where you can trade them on margin.

Some exchange-traded funds will perform well when its index is underperforming. Therefore, when you want to make gain from this kind of ETF, you will hope that the index that you track will perform poorly; otherwise, you will make a loss.

The management and expense costs incurred in a stock ETF are also small against the mutual funds. Therefore, if you are looking at incurring low costs and making significant profits, a stock exchange-traded fund is an excellent option.

The benefits that a stock ETF will offer you are enormous, which is one of the main reasons why stock ETF have currently become popular. If you intend to diversify your portfolio, you will not go wrong with stock ETF since they offer a wide variety of assets. This ETF is also flexible, offers low costs, and it is also tax efficient. However, the ETF comes with several drawbacks that you need to acknowledge before it becomes your investment option.