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An ETF (Exchange-Traded Fund) is a fairly new invention and they are getting very popular. An ETF is similar to an index fund. It tracks a particular index like an index fund, but it is traded like a stock.

This means that an ETF has a ticker symbol and you can buy it by the share. Exchange Traded Funds can also track commodities such as gold and silver. This is a great way to invest in commodities with small investment amounts without holding physical assets. They also give you more liquidity than holding physical commodities.

More: What is an Index Fund?

Expense Ratio

Most index funds have minimum amounts for investment (such as $500, $1000 or even $3000+), but ETFs do not. This is really great for people who cannot afford to start with the high minimum initial investments of index funds.

The expense ratio will usually be much lower for ETFs than index funds or mutual funds. When you purchase ETFs, you pay the usual commission that you would pay when you buy a stock or a bond.

Purchasing ETFs

You can purchase ETFs just like you would purchase stocks, through a broker or through an online brokerage account. They have ticker symbols just like stocks. For example, SPY is the ticker symbol of one of the most popular S&P 500 ETFs. ETFs are a great way to invest in a certain industry if you don’t know which specific companies to invest in.

Open an IRA in 15 minutes or less with TD Ameritrade, where you can buy stocks, mutual funds, index funds and ETFs.

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