ETFs are similar to mutual funds in that they invest your money in a variety of securities. However, unlike other types of mutual funds, ETFs are similar to stocks in that they trade on an exchange and therefore experience price changes throughout the day.
In general, most ETFs invest in the same securities as a particular index – for example, the S&P 500 or Barclay's Aggregate Bond Index. ETFs that mirror indexes are passively managed – meaning their managers make no "active" decisions about buying or selling investments within the fund. Most traditional mutual funds, on the other hand, are actively managed, with managers actively buying and selling holdings in an effort to achieve the fund's objective.
Ways to Use ETFs in Your Portfolio
Given the variety of ETFs available, they can be used in a number of ways.
Use as building blocks of an overall portfolio – ETFs that include multiple sectors, focus on a specific asset class or represent a particular investing style can comprise the core building blocks of a portfolio.
Use alongside individual stocks and bonds – ETFs can provide low-cost, broad exposure to asset classes that may not be represented in your portfolio, helping to improve your diversification.
Complement a mutual fund portfolio – ETFs can also be used in conjunction with mutual funds to achieve additional diversification.
If you're considering incorporating ETFs into your portfolio, Edward Jones Advisory Solutions® offers a variety of models that may be appropriate for you. To learn more, contact Mark Grooters at (616) 281-9026 or visit https://www.edwardjones.com/