In essence, an ETF is a fund. That means that it has multiple investments within it. You can think about it like investing in a company which has a business to only invest in several other companies.
Usually, it has a theme attached to it. For example, an ETF that only invests in renewable energy, or one that only invests in the top 100 stocks in the S&P 500, or the most trendy — an ETF that only invests in top tech stocks.
An ETF could have bonds, stocks, currencies, real estate; a whole bunch of different types of investments within it. But what’s important is that it is always a combination of different assets so you diversify away from the risk of any one company succeeding or failing.
It’s a great way of making an investment in a sector, a specific commodity like gold or the market as a whole while spreading your risk across multiple companies.
What makes the ETF truly unique is that it is exchange-traded, i.e. the ETF itself is available to trade on the stock market!
So instead of giving money to your distant relative that is starting the latest grocery delivery startup, where you’re likely to not see any returns for ~10 years if at all, you can invest in a FoodTech ETF and access that capital anytime by just selling your position in the ETF in the market.
Given what we know about markets in the long run: that they will go up and it is incredibly hard to beat them by individual stock picking, it is a great way to invest favourably for wealth creation.
