Skip to main content

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 fundsFootnote Footnote 1
View this video about 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.
Go to the Merrill Edge Classroom powered by Morningstar
Merrill Edge Investing
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.Footnote 2
Go to the Merrill Edge Classroom powered by Morningstar
Merrill Edge Investing
You can take online classes that include:
  • ETFs and fixed income
  • Analyzing ETFs
  • Using ETFs for portfolio construction
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 choose an ETF

Whether you're just starting out or seeking fresh ideas, Merrill 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
Go to the Merrill Edge Classroom powered by Morningstar
Merrill Edge Investing
Advanced online courses include:
  • Using ETFs opportunistically
  • How ETFs keep the taxman at bay
  • ETF best practices
View a list of ETF definitions
ETF definitions
View ETF definitions from our Glossary that include:
  • Alpha
  • Beta
  • Inverse ETF
  • Leveraged ETF

Action items for ETF investing

Identify your objectives, risk tolerance and time horizon
Look closer at specific ETFs within categories
View ETF research and insights from BofA Global Research, BlackRock, CFRA (powered by data from S&P Global) and Morningstar
Carefully evaluate each ETF
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.
Go to the Investor Education page
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.
Ready to get started?
Looking for a different approach to investing?
An investment advisory program that combines the best features of online investing with a professionally managed portfolio.Footnote 1
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
Footnote 2 Diversification and asset allocation do not ensure a profit or protect against loss in declining markets.