Exchange Traded Funds (ETFs) are funds traded on public exchanges, meaning you can buy, sell, and trade them throughout the day, just like individual stocks.

Many ETFs are very similar to index funds, with a couple of key differences. Like index funds, ETFs hold all stocks or other assets within a public index. Unlike index funds, they’re traded on exchanges, usually making them cheaper and easier to buy and sell.

Benefits of ETFs

ETFs incur very low fees that won’t erode your returns, while offering diversification within a single financial product. They’re also quite efficient from a tax perspective: since they don’t involve a lot of active trading, they don’t often generate capital gains that are subject to taxation. Their liquidity may also be attractive in retirement, when unexpected costs may require you to cash them out.

Risks of ETFs

ETFs are generally only susceptible to a market-wide decrease that affects the entire index they’re tracking. However, not all ETFs work like index funds. Some are actively managed and may contain additional risk.

ETF considerations

Some ETFs can be simple, passive, and elegant, while others can be very complex. Make sure you do your research before investing in one, and speak with a licensed professional to see if ETFs have a place in your responsible retirement plan.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation. The presenters of this information are not associated with, or endorsed by, the Social Security Administration or any other government agency.