What is an ETF?
ETF is short for Exchange Traded Fund, not Endangered Flying Tiger, as some might have you believe.
In very simple terms it’s an investment fund that trades on a stock exchange.
As an example, take a look at a share index like the FTSE 100. You might think “wow, the companies in this index all seem to be doing really well! How can I replicate this level of success?” Insert serious "I’m-all-about-finance” face here
What you could do is buy shares in all the 100 companies in the index and replicate the performance. It’s simple in theory, but you’d need to spend a lot of money, plus you’d need to constantly monitor the index to make sure you’re copying any changes.
That’s why ETFs were created that replicate indexes like the FTSE 100. These funds (called ETFs in case you haven’t been paying attention) are listed on the stock exchange and offered to the public like shares from a publicly listed company.
If you buy one share of an FTSE 100 ETF, you get the exposure to the whole index. That’s what makes EFTs smart choices - they’re like the trusty building blocks of an investment portfolio.
And nothing like a tiger with wings.
Zuper Tuesday Tutes is a (semi) weekly blog where Zena, the world’s first A.I. chatbot for super, shares some of her wisdom in easy to understand language. Got more questions? Ask her (almost) anything!
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