Instruments

ETF

Exchange-traded fund

A basket of assets you can buy as a single share.

Most ETFs passively track an index, which makes them a cheap way to own hundreds of companies at once. They trade like shares, all day, unlike traditional funds that price once daily.

The critical number is the expense ratio. It looks trivially small and it compounds against you for decades. A 1% fee versus a 0.1% fee typically costs you a substantial share of your final wealth over a working lifetime.

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What keeps an ETF honest

Not virtue, arbitrage. If the wrapper drifts from the contents, an institution swaps one for the other and pockets the gap, which closes the gap.

Why it matters

For most people, a broad low-cost index ETF is a perfectly rational core holding.

The mistake everyone makes

Assuming all ETFs are cheap, diversified index trackers. Many are narrow, leveraged, or expensive.

Related terms

Index fund

A fund that simply buys everything in an index, and does not try to be clever.

Expense ratio

The annual fee a fund charges, as a percentage of your money.

Diversification

Owning things that do not move together, so that no single failure ruins you.

See ETF on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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