Common Misconceptions About ETFs

For decades, mutual funds have offered professional portfolio management, diversification, and convenience to investors who lack the time or means to trade their portfolios profitably.

In the 1990s, a new breed of mutual funds appeared, offering many of the same advantages of traditional open-ended funds with much greater liquidity. These funds, known as exchange-traded funds (ETFs), trade on public exchanges and can be bought and sold during market hours, just as stocks can.

The rise in popularity of these funds, however, has also created a fair amount of misinformation about ETFs. This article examines some of the common misconceptions surrounding ETFs and how they work.