An ETF (Exchange-Traded Fund) is like a basket of stocks bundled into a single ticker you can buy and sell. Instead of picking individual stocks, you buy one ETF and instantly get exposure to dozens, hundreds, or even thousands of companies. SPY tracks the S&P 500 — buy one share and you own a piece of all 500 companies. QQQ tracks the NASDAQ 100. IWM tracks 2000 small-cap stocks. It's instant diversification in one click.

ETFs trade on the stock exchange just like individual stocks — you can buy and sell them throughout the day at market price. This is different from mutual funds, which only trade once per day after the market closes. ETFs also tend to have lower fees (called expense ratios) than mutual funds. SPY charges 0.0945% per year, meaning for every $10,000 invested you pay $9.45 annually. Most actively managed mutual funds charge 1% or more — that difference compounds significantly over decades.

There are ETFs for virtually everything: US stocks, international stocks, bonds, gold, oil, real estate, Bitcoin, and even specific sectors like technology (XLK), healthcare (XLV), or energy (XLE). Thematic ETFs target trends like AI (BOTZ), clean energy (ICLN), or cybersecurity (HACK). The choice can be overwhelming, but for most beginners, a simple portfolio of a broad market ETF (like VTI or SPY) is the best starting point.

The biggest advantage of ETFs is simplicity and risk reduction. If you buy a single stock and it drops 50%, your portfolio drops 50%. But if you buy an ETF with 500 stocks and one drops 50%, the impact on your portfolio is minimal because the other 499 stocks absorb the blow. Warren Buffett himself has said that most investors would be better off buying a low-cost S&P 500 index fund than trying to pick individual stocks. ETFs are how you do that.