ETFs

An ETF is a type of pooled investment security that holds multiple underlying assets, rather than only one.

An exchange-traded fund pools a group of securities into a fund and can be traded like an individual stock on an exchange.

1. https://www.investopedia.com/terms/e/etf.asp
2. https://investor.vanguard.com/investor-resources-education/etfs/what-is-an-etf

What’s an ETF?

An ETF is a collection of hundreds or thousands of stocks or bonds, managed by experts, in a single fund that trades on major stock exchanges, like the New York Stock Exchange, Nasdaq, and Chicago Board Options Exchange.

An ETF (exchange-traded fund) is an investment that’s built like a mutual fund—investing in potentially hundreds, sometimes thousands, of individual securities—but trades on an exchange throughout the day like a stock.

Why should I invest in ETFs?

ETFs offer diversification, low costs, and the ability to trade shares live during the trading day. You also have the convenience of buying a fractional share of a Vanguard ETF® for as little as $1.

ETFs provide an opportunity to:

Diversify your holdings

Similar to index mutual funds, an ETF could contain hundreds—sometimes thousands—of stocks or bonds, spreading out your risk exposure compared to owning just a handful of individual stocks bonds.

Enjoy lower investment minimums

An ETF’s minimum is the price of a single share, which could be as little as $50, depending on the ETF. A mutual fund may require $1,000, $3,000, or more to get started.*

Have more transparent pricing

ETFs provide real-time pricing, so you can see their prices change throughout the trading day. Mutual funds aren’t priced until the trading day is over, so you don’t know your price until after you’ve placed your trade.

Are there any tax advantages to owning an ETF?

Similar to conventional index mutual funds, most ETFs try to track an index, such as the S&P 500. An index ETF only buys and sells stocks when its benchmark index does. Big investment moves—like when a company is removed from the index completely—happen very rarely.

In addition, ETF managers can use capital losses to offset capital gains within the fund, further reducing (or possibly eliminating) the taxable capital gains that get passed on to fund shareholders at the end of each year.

Do ETFs have capital gains and dividend distributions? If so, can I reinvest them?

Just like mutual funds, ETFs distribute capital gains (usually in December each year) and dividends (monthly or quarterly, depending on the ETF). Even though capital gains for index ETFs are rare, you may face capital gains taxes even if you haven’t sold any shares.

If you own your ETFs in a Vanguard Brokerage Account, you can reinvest capital gains and dividends.

Learn more about Vanguard brokerage reinvestment program: https://investor.vanguard.com/client-benefits/dividend-reinvestment

Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF Shares?

Yes. Most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—don’t allow for conversions.)

Conversions are allowed from both Investor and Admiral™ Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.

Keep in mind that you can’t convert ETF Shares back to conventional shares. If you decide in the future to sell your Vanguard ETF Shares and repurchase conventional shares, that transaction could be taxable.

If you have a brokerage account at Vanguard, there’s no charge to convert conventional shares to ETF Shares. If you own your Vanguard mutual fund shares through another broker, keep in mind that some brokers may not be able to convert fractional shares, which could result in a modest taxable gain for you. Other brokers may also charge a fee for a conversion. Contact your broker for more information.

Can I buy ETFs from other companies through Vanguard?

Yes. All Vanguard clients have access to ETFs and mutual funds from other companies, as well as individual stocks, bonds, and CDs (certificates of deposit). And you’ll pay $0 commission to trade ETFs and stocks online.

1. Invest in stocks, bonds, CDs & funds from other companies: https://investor.vanguard.com/investment-products

Trading and Pricing

What types of ETF trades can I place?

You can place any type of trade that you would with stocks, including:

1. Limit orders, which ensure that you get a price in the range you set—the maximum you’re willing to pay or the minimum you’re willing to accept.
2. Market orders, which are likely to execute immediately at the best available price, but you have less control over the price you pay or receive.
3. Stop orders, which combine multiple steps: First, you set a trigger price. When the price of the ETF moves past your trigger price, a market order is immediately created.
4. Stop-limit orders, which also combine multiple steps: Like a stop order, you first set a trigger price. But when the price of the ETF moves past your trigger price, a limit order is immediately created.

Understand order types & how they work: https://investor.vanguard.com/investor-resources-education/online-trading/stock-order-types

You can also buy on margin or sell short, but you’ll need to be preapproved for these types of transactions based on your level of experience.

How is the market price of an ETF determined?

The market price of an ETF is determined by the prices of the stocks and bonds held by the ETF as well as market supply and demand.

The market price can change throughout the trading day and may be above or below the total value of the stocks and bonds the ETF invests in. Though the difference is usually small, it could be significant when the market is particularly volatile.

Why is the market price sometimes different from the net asset value (NAV) of an ETF?

The market price of an ETF is driven in part by supply and demand. Depending on these market forces, the market price may be above or below the NAV of the fund, which is known as a premium or discount.

For historical information on the daily closing market price and NAV for a specific Vanguard ETF, look for the Price & Performance tab on the ETF’s profile page.

Browse Vanguard’s complete ETF lineup: https://investor.vanguard.com/investment-products/list/etfs

3 Things To Know Before Buying an ETF

Source: https://www.youtube.com/watch?v=HzYmeyDd9to

1. Go to yahoo finance and type the name of the ETF you want to invest in
   1. Click on “Holdings” and you can see the companies inside this ETF like Apple, Microsoft, and Amazon
   2. If you don’t like the companies, don’t buy the ETF
2. Click on “Summary” and look at the “Expense Ratio”
   1. This is the fee you have to pay to invest in this ETF
   2. To find your expense, you multiply the expense ratio by the price of each share
   3. All of these expenses are automatically deducted
3. Go to Nasdaq.com and type in the name of the ETF
   1. You can see the payment date and how much you get paid every quarter by holding one share
   2. And the annual dividend tells you how much money you get for the entire year

TODO

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2. 8 Easy-To-Understand ETFs To Replace a Savings Account https://www.investopedia.com/financial-edge/0113/7-easy-to-understand-etfs-to-replace-a-savings-account.aspx
3. ETF vs. Mutual Fund: What’s the Difference? https://www.investopedia.com/articles/investing/110314/key-differences-between-etfs-and-mutual-funds.asp
4. 7 Best ETF Trading Strategies for Beginners https://www.investopedia.com/articles/investing/090115/7-best-etf-trading-strategies-beginners.asp
5. How Are ETF Fees Deducted? https://www.investopedia.com/ask/answers/071816/how-are-etf-fees-deducted.asp
6. See how Vanguard ETFs can make investing simpler: https://investor.vanguard.com/investor-resources-education/article/investing-in-vanguard-etfs
7. Generate Monthly Income With ETFs—No Options Knowledge Required https://www.investopedia.com/generate-monthly-income-with-etfs-11740061
8. How Are ETFs Taxed? https://www.investopedia.com/articles/exchangetradedfunds/08/etf-taxes-introduction.asp
9. Could ETFs Be Your Key to a Worry-Free Retirement? https://www.investopedia.com/etfs-reliable-retirement-income-source-11741769
10. 10 ETF Concerns That Investors Shouldn’t Overlook https://www.investopedia.com/articles/mutualfund/07/etf_downside.asp