A Beginner's Guide to Understanding ETFs

If exchange-traded funds sound like exotic investments, here’s what you need to know.

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There is also a danger of underperforming other investments. Indexes do go up consistently over time. But individual stocks have the potential to go up much more quickly. Investors who are a bit more accepting of risk might want to look into instruments that can provide more dramatic returns. ETFs are more suited for investors whose taste for risk is less strong.

There are also concerns that ETFs might simply be a trend, and that traditional mutual funds are better investments. This rumor has circulated in investment circles since the creation of ETFs in 1993. After nearly 20 years, it looks as if this once-exotic instrument is becoming a more traditional one.