How to Invest in ETFs

Exchange-traded funds trade like shares and hold like funds. Here is how to use them well.

Funds · 7 min read

How ETFs differ from mutual funds

ETFs trade throughout the session at a market price, which can sit slightly above or below net asset value. Mutual funds price once a day at NAV.

The creation-redemption mechanism generally makes ETFs more tax-efficient in taxable accounts.

Use limit orders and avoid the first and last fifteen minutes of the session, when spreads are widest.

Check average daily volume and the bid-ask spread. Thin ETFs cost more to enter and exit than the expense ratio suggests.

Narrow sector and theme ETFs usually launch after the theme is already expensive. Broad, boring exposure ages better.

Leveraged and inverse ETFs reset daily and are trading tools, not holdings.