What is an ETF?

ETF: An investment fund traded on the stock exchange that often tracks an index. One purchase puts you in many companies at once.

ETF stands for exchange traded fund, a fund you buy and sell on the stock exchange. It holds shares or bonds of many companies at once. With one purchase you own a small piece of all of them.

Most ETFs track an index, such as the AEX or a world index. The fund tries to copy that index as closely as it can. That is why costs are often lower than in a fund where a manager picks the stocks.

Because your money is spread over many companies, the fall of one company hits you less hard. But if the whole market falls, the ETF falls with it.

Example
You put 100 euros into an ETF that tracks 1,000 companies. That is on average 10 cents per company. If one company drops 50 percent, it costs you about 5 cents.

Watch out
An ETF can fall just as hard as the market it tracks. Also look at the ongoing charges and the spread when buying and selling.

Read more in the guide What is an ETF, really?.

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