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ETFS Education

Learn about investing in ETFs

Understand the basics of ETFs

What are ETFs?

ETFs are a pool of securities sold in shares that trade throughout the day, like stocks. They are professionally managed, like mutual funds, and can provide portfolio diversification, especially over single stocks. Unlike mutual funds, there are no minimum purchase requirements for ETFs and they are generally more tax-efficient investments than mutual funds.

See what ETFs can do for your portfolio and learn about possible risks.

ETFs Can Offer Investors

  • Targeted market exposures, such as certain asset classes, sectors, or investment themes
  • Potential tax efficiency
  • Potentially lower expense ratios than many mutual funds
  • Tradability throughout the day on an exchange
  • Low minimum purchase amount, which is the cost of one share and could vary

Know the Risks Associated with ETFs

ETFs are exposed to the investment risks associated with the underlying securities of the index
ETF investing involves expenses like fund expense ratios, trading-related costs and potential commissions for purchases and sales in certain account types
The fund's holdings may not exactly duplicate the composition of the index, and therefore performance of the fund may not match the index
ETFs that employ sophisticated trading strategies such as the use of leverage may not be suitable for all investors
Certain ETFs with unique exposures (like foreign indexes and commodities) entail unique risks that investors should review through the Prospectus

Investors Should Consider

  • The 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

What are the different types of ETFs I can invest in?

Fixed Income

Fixed income funds are bond funds whose shares are listed on a stock exchange and traded throughout the day. There are funds focusing on corporate, government, municipal, international and global debt, as well as funds that track the broader Bloomberg Barclays Aggregate Bond Index. Investors can also purchase bond ETFs that focus on specific ranges of maturity dates.


Commodity funds are homogenous goods often traded in bulk on exchanges, such as oil or grain. They are usually sold through futures contracts, which are priced based on supply and demand for that material, or in ETFs, which are more readily available and based on those contracts.


Equity ETFs are funds that invest in the stocks of U.S. or international companies rather than investing in bonds.


Specialty funds, or sector funds, and ETFs that focus on specific industries or markets.


Sustainable funds are funds whose shares use environmental, social and corporate governance (ESG) criteria to evaluate investments or assess their social impact.

Common questions about ETFs

If you're looking for more information, check out these responses to some of the common questions investors have about ETFs

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Investing involves risk including the possible loss of principal investment.

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

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Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
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.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (PDF).

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