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Exchange-traded funds, or ETFs, are pooled investment vehicles that offer exposure to a particular area of the market.
The first American ETF, the S&P 500 Depository Receipt (SPDR), was released in January 1993 by the American Stock Exchange and was designed to mimic the S&P 500 Index. Today, SPDR has more than $86 billion in assets under management and roughly 250 million shares are traded on a daily basis, according to Investopedia. The first actively-traded ETF came 15 years later.
Investors buy shares of these pooled assets just like mutual funds, but while there are similarities between the two funds, there are also stark differences and certain benefits.
ETFs and mutual funds both bundle together securities, but there are notable differences between the two:
Generally speaking, ETFs have the following advantages:
Adoption of ETFs continues to grow, particularly as robo-advisors — whose portfolios are predominately ETFs — become more prevalent. Robo-advisors, also known as digital investing, can keep overhead costs low due to the cost benefits of ETFs. Speak with a financial professional to see if ETFs are worth incorporating into your portfolio.
Investing can be a helpful method of planning for the future, whether it’s your retirement or any other financial goal. To learn how we can help you invest for the future, visit us online or schedule a Citizens Retirement Checkup at your nearest Citizens Bank branch.
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