What Is an Exchange-Traded Fund (ETF)?

By Anders Bylund – Updated Jul 1, 2025 at 3:40 AM

Key Points

ETFs combine the easy trading of stocks with the diversification of mutual funds.
Most ETFs passively track indexes, offering lower fees and predictable performance.
They're traded on exchanges, allowing instant buy/sell like stocks.

Stocks are easy to trade but only give you ownership in one company. Mutual funds provide diversification and flexibility with professionally managed portfolios but are saddled with clumsier trading processes and potentially higher tax bills.

An exchange-traded fund (ETF) delivers the best of both worlds. With ETFs, you get access to large, diversified stock portfolios through a single ticker that behaves like a simple stock in many ways.

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An infographic defining and explaining the term exchange-traded fund (ETF). — Image source: The Motley Fool.

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Stock Ticker

A shorthand code of letters representing a company's stock for trading purposes, displayed on financial platforms.

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ETF vs. Index Fund: What Are the Differences?

Your investment style can dictate which kind of fund is best for your portfolio.

Best Value ETFs of October 2025

Value ETFs can net serious profits over time. Get a list of this year's best funds, including some Warren Buffett favorites.

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If an index-tracking ETF is the only investment you'll ever make, that's a perfectly reasonable strategy that puts your financial management efforts far ahead of most people's. It can also be a stepping stone to picking market-beating individual stocks someday, supported by the robust, long-term gains of a simple index-based platform.

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About the Author

Anders Bylund is a contributing Motley Fool media and technology analyst covering semiconductors, cloud computing, internet infrastructure, quantum computing, and streaming media. Previously, Anders was a systems administrator for Nielsen Technology and CSX, gaining hands-on experience with enterprise-class systems. He was also a freelance writer for Ars Technica, TIME, USA Today, CNN, WIRED, and AOL's Daily Finance. He holds a bachelor’s degree in English and a master’s degree in library and information sciences from Florida State University. He believes in coyotes and time as an abstract.

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Charles Schwab is an advertising partner of Motley Fool Money. Anders Bylund has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool recommends Charles Schwab and recommends the following options: short June 2025 $85 calls on Charles Schwab. The Motley Fool has a disclosure policy.