ETFs (2024)

Frequently Asked Questions

• What is a leveraged ETF?

  A leveraged exchange-traded fund (ETF) is a security that uses financial derivatives and debt to boost the returns of an underlying benchmark index. So while a traditional ETF may track securities of an index on a 1:1 basis, a a leveraged ETF may target a higher mark for a 2:1 or 3:1 ratio.

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• Are ETFs or mutual funds better for young investors?

  Many young or novice investors may have heard about exchange-traded funds (ETFs) or mutual funds and are wondering which may be the better option. Here are some things to keep in mind when deciding between the two investing options. First, typical mutual funds are actively managed rather than passively tracking an index, which can be an advantage. Many mutual funds also may require a minimum investment, but many brokers now offer commission-free ETFs. Generally speaking, ETFs are more tax-efficient and more liquid than mutual funds, which is also something young investors should weigh.

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• What is an exchange traded product (ETP) ?

  Exchange traded products are financial instruments that track a benchmark index or a basket of underlying securities that trade on exchanges similar to stocks and bonds that are bought and sold in the open market. Some popular ones include exchange traded notes, exchange traded funds, and other related products.

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• What is a stock exchange traded fund (ETF)?

  A stock exchange traded fund is a financial product that tracks a basket of equities, which is an investing option that helps investors diversify their investments in a specific industry or set of companies, limiting the risk of investing in a single stock. Those funds also offer a more cost-effective way to get exposure to a selection of stocks that track a specific index, industry or category of equities.

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• What is a bond ETF?

  Similar to a stock ETF, a bond exchange traded fund is a financial product that tracks a basket of debt, which is an investing option that helps investors diversify their investments in a specific industry or set of companies, limiting the risk of investing in a single bond. They can mirror bond mutual funds that have a debt portfolio of various risk profiles, from safer U.S. Treasuries to higher yielding bonds of varying maturities and risk exposure.

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• What is an inverse ETF?

  An inverse exchange traded fund is a derivative product that uses securities tied to a benchmark index to profit from a decline in value of the underlying index. Inverse ETFs are also known as short ETFs or bear ETFs since the strategy involved investing on market declines or short positions in order to profit from the strategy. Inverse ETFs typically have higher fees compared to traditional ETFs, and can lead to losses if investors calculate the market direction incorrectly.

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Key Terms

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