An ETF is a basket of stocks, bonds, or other securities that trades on an exchange like an individual stock.
ETFs may be either actively or passively managed and can fit many portfolios and investment strategies.
In general, ETFs tend to be a flexible, transparent, and tax-efficient vehicle for investors.
Exchange-traded funds (ETFs) continue to gain popularity. And it's not surprising. These exchange-traded products (ETPs) collect a variety of stocks, bonds, and/or other securities so people can invest in many companies with the purchase of a single ETF share. Investors may benefit from broader access. But understanding the basics of ETFs (and ETPs in general) and the types of investments available is critical. More information can lead to more informed decisions.
An ETF is a basket of securities (like stocks, bonds, and other investments) that trades on an exchange like an individual stock. It’s a pooled investment vehicle that lets investors put money in multiple investments without having to buy each one individually.
One of the key advantages of this structure is diversification, which helps distribute risk across various holdings.
ETF is short for Exchange Traded Fund. ETF's track the performance of a particular stock market index like the S&P 500 or NASDAQ 100. ETF fund managers typically seek to mirror the indexes holdings and weightings. Giving investors broad exposure to a specific asset class or market sector. Owning ETF shares can help provide you with investment diversification, potentially helping to manage your overall investment risk. And there are many other important benefits that ETF can offer. Want to learn more? Check out our other videos.
Before investing consider the funds investment objectives, risks, charges, and expenses. Visit invesco.com for a prospectus with this information. Read it carefully before investing.
Check out our other ETF videos
ETFs can be categorized by how they invest and what they invest in.
Passive ETFs follow the market by tracking indexes like the S&P 500. Active ETFs aim to outperform the market by letting portfolio managers pick individual securities based on their expertise.
A broad market ETF tries to match the performance of the S&P 500, NASDAQ-100, or another market index. These ETFs give investors access to many stocks at a low cost.
These ETFs invest in stocks that have similar qualities, or “factors” (for example, those that have low volatility or pay higher dividends). The idea is to invest in stocks that may help you target a specific opportunity like mitigating risk or generating income.
A sector ETF concentrates on a particular industry like technology, health care, or energy. It lets investors target growth opportunities or hedge against downturns in other sectors.
A fixed income ETF invests in bond securities like corporate, government, or municipal bonds. Bonds can pay a steady income and are generally less risky than stocks.
An international ETF lets an investor put money in stocks and bonds from another country. It can be a way to diversify beyond US-based investments.
ETFs are a subcategory of ETPs. While ETFs tend to focus on securities, ETPs may also include other underlying assets.
These ETPs give investors access to a variety of digital assets including cryptocurrencies like bitcoin, blockchains like Ethereum, and companies that benefit from decentralized finance. This type of ETP can be an easy way to include transformative technology in an investment portfolio.
A commodity ETP follows the price of physical goods like gold, oil, or an agricultural product. ETPs can invest in specific commodities or a broad group. Commodities provide diversification potential. For example, some commodities may benefit during inflationary times while other investments fall.
Wondering whether an ETF is right for you? Here are a few items to consider.
ETFs can be bought and sold anytime during the trading day since transactions take place on exchanges.
You can see the prices of ETFs in real time and know exactly what securities they’re holding on a daily basis.
ETFs have tax benefits rooted in their unique structure. With ETFs, capital gains and taxes are generally recognized only when investors sell their own shares.
Check out our wide range of exchange-traded products.
On one side, weaker growth makes Fed easing more likely. On the other side, stronger growth supports an intact business cycle. Either can be supportive of markets if inflation stays contained.
Zack Kass, former Open AI executive, joined the Greater Possibilities to discuss the state of artificial intelligence and what the future may hold.
Despite last week’s selloff in software stocks and other momentum-driven areas, we believe the fundamental backdrop remains supportive.
Important information
NA4704802
Image: Jacob Wackerhausen / Getty
The Nasdaq-100 Index includes 100 of the largest domestic and international non-financial securities listed on the NASDAQ Stock Market based on market capitalization. An investment cannot be made into an index.
All investing involves risk, including the risk of loss.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Beta is a measure of risk representing how a security is expected to respond to general market movements.
There are risks involved with investing in ETFs, including possible loss of money. Index-based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index-based and actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Funds are subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Funds.
Bitcoins are considered a highly speculative investment due to their lack of guaranteed value and limited track record. Because of their digital nature, they pose risks from hackers, malware, fraud, and operational glitches. Bitcoins aren’t legal tender and are operated by a decentralized authority, unlike government-issued currencies. Bitcoin exchanges and bitcoin accounts aren’t backed or insured by any type of federal or government program or bank.
Bitcoin is a digital currency (also called cryptocurrency) that is not backed by any country’s central bank or government. Bitcoins can be traded for goods or services with vendors who accept bitcoins as payment.
Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds and can fluctuate significantly based on weather, political, tax, and other regulatory and market developments.
Cryptocurrencies are considered a highly speculative investment due to their lack of guaranteed value and limited track record. Because of their digital nature, they pose risk from hackers, malware, fraud, and operational glitches. Cryptocurrencies are not legal tender and are operated by a decentralized authority, unlike government-issued currencies. Cryptocurrency exchanges and cryptocurrency accounts are not backed or insured by any type of federal or government program or bank.
Diversification does not guarantee a profit or eliminate the risk of loss.
Smart beta represents an alternative and selection index-based methodology that seeks to outperform a benchmark, or reduce portfolio risk, or both in active or passive vehicles. Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
Factor investing is an investment strategy in which securities are chosen based on certain characteristics and attributes. Factor-based strategies make use of rewarded risk factors in an attempt to outperform market-cap-weighted indexes, reduce portfolio risk, or both.
To the extent the fund invests a greater amount in any one sector or industry, there is increased risk to the fund if conditions adversely affect that sector or industry.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation. The tax information presented is based on current interpretation of federal income tax law. State and local income tax laws may differ from federal income tax law.
The opinions referenced above are those of the author as of Aug. 1, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes.
This link takes you to a site not affiliated with Invesco. The site is for informational purposes only. Invesco does not guarantee nor take any responsibility for any of the content.
