Over the past decade or so, ETFs have increased in popularity as funding vehicles for investment portfolios.
The Mechanics of an ETF
When you purchase an ETF you are essentially buying a diversified portfolio of assets within a particular sector, much like an index mutual fund. Unlike mutual funds, which are priced at the end of each trading day, ETFs are priced throughout the trading day, just like stocks. Like stocks, ETFs can be sold short, or can be purchased on margin, allowing additional options for enhancing (or reducing) investment returns. ETFs also tend to be more tax efficient than mutual funds, and their expense ratios (management fees + trade expenses) are generally lower as well.