Understanding & Investing in ETFs

 

What is an ETF?

Like mutual funds, exchange-traded funds (ETFs) offer diversified exposure to a portfolio of securities based on the index that the ETF is designed to track. Like stocks, ETFs trade during market hours.
ETFs are:
  • A pool of securities sold in shares that trade throughout the day, like stocks
  • Are professionally managed, like mutual funds
  • Can provide portfolio diversification, especially over single stocks
  • No minimum purchase requirements, unlike mutual funds
  • Generally more tax-efficient investments than mutual funds1
 
View this tutorial about ETFs
 
Understanding
ETFs
This video will help you learn how ETFs work and how to incorporate them into your investment plan.
Read: Getting to know exchange-traded funds
 
Getting to know
exchange-traded funds
This educational article explains how ETFs work and some terms you should know as an investor.
 
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Learn at your own pace with online courses that include:
  • Are ETFs right for you?
  • Anatomy of an ETF
  • Mutual funds or ETFs—Which to choose?
 
Exchange-traded funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost.
 

How ETFs fit into your portfolio

An ETF is a pool of securities traded on an exchange, such as the New York Stock Exchange or NASDAQ. ETFs offer more diversification than individual stocks, mutual funds and bonds. Like stocks, ETFs are traded during the day at market-driven prices. Like shares of mutual funds, ETFs offer partial ownership of a professionally managed portfolio.2
Play video: Asset allocation and your portfolio
 
Asset allocation and
your portfolio2 (1:48)
When deciding how to allocate your money among different investments, be sure to consider your goals, investment experience, time frame, liquidity needs, and your comfort level with risk.
 
 
Is an ETF really a fund? Maybe not
Special features in exchange-traded funds have implications concerning taxes, liquidity, tracking error and more.
 
How to Build a Portfolio
 
How to Build a Portfolio
  • Consider your time horizon and comfort level with investment risk when choosing the proper asset allocation
  • Select diversified investments that align to your goals
  • Monitor your investments to keep your portfolio on track
 
Go to the Merrill Edge Classroom powered by Morningstar
 
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Classroom
You can take online classes that include:
  • ETFs and fixed income
  • Analyzing ETFs
  • Using ETFs for portfolio construction
 

How to choose an ETF

Whether you're just starting out or seeking fresh ideas, Merrill Edge provides timely tools and relevant resources along each step of your investing journey.
Criteria to consider
Some of the factors to consider when selecting exchange-traded funds include:
  • Underlying index benchmark of the fund and its tracking error
  • Liquidity, average number of traded shares and the assets under management of the fund
  • Manager tenure and track record
  • Costs, especially expense ratio, as described in the prospectus
 
Read: How to choose the right ETF. Copyright 2016 ETF.com. All rights reserved.
 
How to choose the right ETF
This article explains how ETFs work and key investing strategies you should understand as an investor.
 
View a list of ETF definitions
 
ETF definitions
View ETF definitions from our Glossary that include:
  • Alpha
  • Beta
  • Inverse ETF
  • Leveraged ETF
Go to the Merrill Edge Classroom powered by Morningstar
 
Merrill Edge Investing
Classroom
Advanced online courses include:
  • Using ETFs opportunistically
  • How ETFs keep the taxman at bay
  • ETF best practices
 
 
 

Action items for ETF investing

Identify your objectives, risk tolerance and time horizon
Decide which ETFs match your investor profile
 
Active vs. Passive: The case for and against index funds ETF.com. All Rights Reserved.)
 
Look closer at specific ETFs within categories
 
View ETF research and insights from BofA Merrill Lynch Global Research, BlackRock, S&P Capital IQ and Morningstar
 
 
Fixed Income Investing ETFs: The Basics ETF.com. All Rights Reserved.)
 
Carefully evaluate each ETF
 
Compare costs with the ETF calculator
 
 
Access your accounts and market information anytime with our mobile app
 
 

Related resources

Let us help you narrow your choices
Merrill Edge Select™ ETFs are selected through a proprietary process that takes risk, cost and performance into account.
 
More considerations for ETF investors
Some of the risks investing in ETFs include:
  • Active trading. Since ETFs trade like stocks, they may move like stocks during inopportune times.
  • Higher costs. ETFs may be more suitable for long-term investors because each trade incurs a commission.
  • Tax implications. Capital gains may be generated when managers trade stocks to align with the fund's objectives.
 
ETF Screener
You can filter a vast universe of ETFs based on specific criteria you choose and adjust.
 
More you can do
 
 
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Investor education overview
You can learn about all of the investments we offer based on your level of experience, topic, or the resource format in the Investor Education learning center.
 
 
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1 Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

2 Diversification and asset allocation do not ensure a profit or protect against loss in declining markets.

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