ETF - Exchange Traded Fund

(Join me for a new weekly series - Pocket Money - where I explain financial basics in fewer than 200 words. Feel free to make suggestions!)

An Exchange Traded Fund (ETF) is like a basket of investments which you can buy and sell on the stock market, just like you would with a share. You own a tiny bit of each of the assets in the basket which gives you immediate diversification.

ETFs are usually passively managed - so they follow a stock market, an industry or maybe themes like renewable energy. So this iShares FTSE 100 ETF is comprised of shares in the biggest 100 UK firms. The fund manager buys according to what is happening in the index, not what they think might happen in the future - this passive management means they tend to be cheaper.

The lower costs, diversification and transparency means they're popular with beginner investors.

Because ETFs are traded on stock markets, the price fluctuates during the day as opposed to index funds which are sold directly through the provider at a price set once a day.

Love Eleanor. xxx