9 Things You Must Know About ETFs

There’s no question that exchange-traded funds are becoming a big part of the investor’s toolkit.

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There’s no question that exchange-traded funds are becoming a big part of the investor’s toolkit. Assets in ETFs and similar exchange-traded products now exceed $2.3 trillion, nearly 10 times what they were a decade ago, according to the Investment Company Institute, the fund industry’s trade group.

But as commonplace as ETFs are now, they can still be confusing. Their structure is a hybrid of investing ideas: Like index mutual funds, most ETFs own a basket of stocks, bonds or other assets that mimic a benchmark, such as Standard & Poor’s 500-stock index. But like stocks, ETF shares trade throughout the day on an exchange. And as the industry has grown, so has the variety of exchange-traded products available. Some ETFs try to enhance return by using leverage or by betting against the direction of the market. So-called exchange-traded notes don’t invest in stocks or bonds at all; rather, they are bank-issued debt. Other exchange-traded products are actually trusts, which often buy physical commodities, such as gold or silver.

Knowing some of the basics of how exchange-traded products work will go a long way toward helping you select the right ones for your portfolio.

All data as of December 15, 2016, unless otherwise noted.

Contributing Writer, Kiplinger's Personal Finance
Carolyn Bigda has been writing about personal finance for more than nine years. Previously, she wrote for Money, and is a regular contributor to the Chicago Tribune.