An exchange-traded fund, or ETF, is a cousin, if not a sibling of these funds, says Kip Meadows, CEO and founder of Nottingham, a Rocky Mount, North Carolina fund administration firm. An ETF’s composition — a diversified collection of securities — is similar to that of a mutual fund.
But this type of fund has a few differences, and some features make it especially good for a new investor.
The main difference between these funds and mutual funds is that ETFs trade on an exchange all day, just the way an individual stock does. In other words, you can buy shares of an ETF in the morning and sell it in the same afternoon, says Eric Ervin, CEO of Blockforce Capital, a San Diego-based asset manager.