An exchange-traded fund (ETF) is a diversified basket of investments, such as stocks or bonds, that trades on an exchange like a stock. ETFs typically track an index and allow investors to buy or sell exposure to many securities with a single trade.

What fees do ETFs charge?

ETFs charge an annual management fee called the management expense ratio (MER). You also pay trading costs such as commissions and bid-ask spreads when buying or selling. Over time, lower MERs and careful trading can help you keep more of your returns.

How many ETFs do I need in my portfolio?

Many investors can build a diversified portfolio with just one to three ETFs, especially if they use broad-market or all-in-one allocation ETFs. The right number depends on your goals, risk tolerance, and how hands-on you want to be.

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ETF Essentials

Q: Are ETFs good for beginners?

ETFs can be a good option for beginners because they provide instant diversification, transparent holdings, and relatively low fees. A simple portfolio of broad-market ETFs is often easier to manage than picking individual stocks.

Everything you need to use ETFs well: structure, trading, fees, liquidity, tracking error, and how they compare with index funds.

Why ETFs matter for long-term investors

Exchange-traded funds (ETFs) have become one of the primary building blocks for modern portfolios. They package diversification, transparency, and low costs into a single trade — making them a natural next step after you’ve learned the investing basics.

This ETF Essentials section explains how ETFs work in plain English so you can choose funds intentionally, avoid common mistakes, and connect each ETF you buy to a long-term plan instead of chasing what’s popular.

Core ETF guides

Start with these four articles. Together, they explain what ETFs are, what you pay, and how they behave when you trade them.

What is an ETF?
Understand how ETFs are structured, how they track an index, and how they differ from mutual funds and individual stocks.
ETF fees (MER)
Learn what management expense ratios are, how they are charged, and why small differences in fees compound over decades.
Liquidity & bid-ask spreads
See why trading volume, underlying holdings, and spreads matter when you enter and exit ETF positions.
Index funds vs ETFs
Compare traditional index mutual funds with ETFs so you can choose the right wrapper for your situation.

Start with “What is an ETF?” Step 1 of 4 Revisit asset allocation

Tip: Read these guides in order once. Later, treat them as a reference before you buy a new ETF or change your portfolio.

Using ETFs in a real portfolio

ETFs are tools, not strategies by themselves. The strategy comes from your asset allocation, risk tolerance, and time horizon.

Use broad-market ETFs as your core holdings.
Align stock/bond mix with your risk level and time horizon.
Avoid overlapping ETFs that track similar indexes.
Limit narrow “theme” ETFs to a small slice, if at all.

To see how a simple ETF portfolio comes together, review long-term portfolio ideas in Strategies.

All-in-one allocation ETFs

Many providers now offer “all-in-one” ETFs that hold a diversified mix of stocks and bonds in a single fund. They automatically rebalance and keep your asset mix close to its target.

For investors who prefer simplicity, an all-in-one ETF can act as a complete portfolio in one ticker, as long as the risk level matches your goals.

Fees, liquidity & tracking error

Fees you can see (and can’t)

With ETFs, you typically pay:

MER — the built-in annual management fee.
Trading commissions — depending on your broker.
Bid-ask spread — the gap between buy and sell prices.

Over time, lower MERs and careful trading can help you keep more of your returns. Our guide on ETF expense ratios and fees dives into the details.

Liquidity & tracking error

Liquidity and tracking error are what separate great ETFs from merely average ones.

Liquidity affects how easily you can trade without moving the price.
Tracking error is how closely the ETF follows its benchmark index over time.

The liquidity & spreads guide explains practical ways to check these before you invest.

Helpful calculators for ETF investors

Use these tools to understand how fees, returns, and time interact when you build an ETF-based plan.

Compound Interest Calculator — see how contributions and returns compound over time.
Retirement Savings Calculator — estimate how much you may need to invest using ETFs.
CAGR Calculator — measure your average annual return on ETF investments.

After running the numbers, revisit your ETF choices and asset allocation to ensure they match your targets.

ETF investing: quick FAQ

What is an ETF?

An exchange-traded fund (ETF) is a diversified basket of securities that trades on an exchange like a stock. Most ETFs track a specific index, sector, or asset class, giving you broad exposure with a single trade. Start with our guide What is an ETF? for a full walkthrough.

Are ETFs good for beginners?

ETFs can be very beginner-friendly because they offer instant diversification and transparent fees. Instead of picking individual stocks, you can own a broad slice of the market with one or two well-chosen ETFs. The key is to match each ETF to your asset allocation and time horizon.

How much do ETFs cost?

You pay an annual management fee (MER) inside the fund plus any trading commissions and bid-ask spreads when you trade. Many broad-market ETFs now have very low MERs, but even small differences add up over decades. Our ETF fees guide shows how to compare costs.

How many ETFs do I need?

Many investors can build a diversified portfolio with one to three ETFs, especially when using broad-market or all-in-one allocation ETFs. Adding more funds doesn’t always add more diversification — sometimes it just adds complexity.

Next: from ETFs to a full investing plan

Once you understand how ETFs work and what they cost, you’re ready to turn them into a simple, durable portfolio.

Revisit Investing Basics to confirm your foundations.
Explore Strategies for long-term ETF portfolios.
Use the Tools hub to stress-test savings and return assumptions.

See ETF-based strategies Back to Investing Basics