An exchange traded fund is essentially an improved version of a mutual fund, i.e. they’re traded on major stock exchanges like the New York Stock Exchange (NYSE). ETFs look very much like mutual funds, except that instead of invested in securities purchased from your broker, ETFs are purchased and held electronically, with all purchases and sales made at market close. In addition, ETFs offer a number of advantages over mutual funds.

The main advantage of ETFs is that they offer a large range of advantages over traditional forms of investing. First, as previously mentioned, ETFs can be purchased and held electronically, so there’s no need to pay commission fees to your broker. This means that you don’t have to worry about the high costs of buying and selling during market hours. And since ETFs trade on major exchanges like the NYSE and NASDAQ, you’re investing in real goods that are being purchased and sold on global markets.

By contrast, actively managed mutual funds are limited in the types of securities and minimum distributions that they may hold. Furthermore, they have restrictions on the size of the sales and purchases that they can make. Finally, most actively managed funds take a long duration to mature, which means that you’ll only earn small returns on your investments. Most importantly, when you take a long term view of your portfolio, you run a significant risk of losing your principal holdings. However, with an ETF, you can enjoy returns with minimal risk, since ETFs aren’t held or traded by anyone other than you and your brokers.

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