What exactly is an ETF and how does it work?

An ETF (Exchange-Traded Fund) is an investment that lets you buy a basket of stocks, bonds, or other assets in a single purchase. Think of it like buying a pre-packed grocery basket instead of picking each item individually. ETFs trade on exchanges just like stocks, so you can buy and sell them throughout the trading day at market prices. They're designed to track specific indexes, sectors, commodities, or other assets, giving you instant diversification without having to buy dozens of individual stocks.

How is an ETF different from a mutual fund?

While both ETFs and mutual funds offer diversification by pooling many investments together, they differ in key ways. ETFs trade like stocks throughout the day at market-determined prices, while mutual funds only trade once daily at the closing price. ETFs typically have lower expense ratios and minimum investments than mutual funds. They're also generally more tax-efficient because they trigger fewer capital gains distributions. For beginners, ETFs often provide an easier, more flexible entry point into diversified investing.

What do ETFs like SPY, QQQ, and SOXX actually contain?

Each ETF has its own focus: SPY tracks the S&P 500 index, containing 500 of the largest US companies across various industries. QQQ follows the Nasdaq-100 Index, focusing on 100 of the largest non-financial companies listed on the Nasdaq, with heavy technology concentration. SOXX specifically targets semiconductor companies that design, manufacture, and distribute microchips. DIA mirrors the 30 large "blue-chip" companies in the Dow Jones Industrial Average. GDX contains companies involved in gold mining, offering exposure to gold prices without buying physical gold.

Why is diversification important for investors?

Diversification means spreading your money across different investments to reduce risk. It works on the principle that not all investments perform the same way at the same time. When some investments are down, others might be up, helping to smooth out your overall returns. By investing in ETFs, you automatically gain diversification since each ETF contains many different companies. This reduces the impact of any single company performing poorly, which is especially important for beginners who might not yet have enough capital to build a diversified portfolio of individual stocks.

5 handpicked stocks

Popular ETFs

ETFs give you an easy way to invest in a basket of companies at once. These carefully selected exchange-traded funds were chosen by our professional analysts to help you diversify and reduce risk while still capturing market growth.

Han Tan | Market Analyst

Published on May 24

Top Picks from This Group

Here are a few of the assets in this group. Create an account to unlock the full list.

S&P 500 ETF Trust SPDR

SPY

Current price

$661.82

Invesco QQQ Trust Series 1

QQQ

Current price

$595.97

Dow Jones Industrial Average ETF SPDR

DIA

Current price

$462.28

iShares Semiconductor ETF

SOXX

Current price

$268.83

Gold Miners Market Vectors ETF

GDX

Current price

$74.68

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About This Group of Stocks

Our Expert Thinking

ETFs are perfect for both new and experienced investors looking for instant diversification. We've selected these specific ETFs because they cover major market segments, have strong track records, and provide exposure to different sectors like technology, precious metals, and broad market indices.

What You Need to Know

Unlike individual stocks, ETFs let you own a slice of dozens or hundreds of companies with a single purchase. This built-in diversification helps reduce your risk while still giving you the flexibility to trade throughout the day just like regular stocks.

Why These Stocks

Each ETF in this collection was chosen for its liquidity, performance history, and the specific market exposure it provides. From the technology-focused QQQ to the gold mining potential of GDX, these selections offer a balanced approach to building a resilient portfolio.

Why You'll Want to Watch These ETFs

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Built-In Safety Net

ETFs spread your investment across multiple companies, protecting you if one performs poorly. This is why many financial advisors recommend them as a first step for new investors.

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Best of Both Worlds

These ETFs give you the diversification benefits of mutual funds with the trading flexibility of stocks. You can buy or sell them any time the market is open.

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Lower Costs, Higher Returns

ETFs typically have lower expense ratios than mutual funds, which means more of your money stays invested and working for you over time.

Get the full story on this Basket. Read our detailed article on its risks and potential.

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Why Invest with Nemo Money?

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Zero Commission

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