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This type of ETF is actively managed by someone, either an individual or an entire team of experts. This leads to a higher cost, and the returns are based on the management and correct decisions. At times, managed ETF may be beneficial as the expert management aims for higher returns than normal market index predictions.

xchange-traded funds, or ETFs, are similar to mutual funds because both instruments bundle together securities to offer investors diversified portfolios. Typically anywhere from 100 to 3,000 different securities can make up a fund. Yet, the two investment types are marked by significant differences.

Unlike mutual funds, however, ETFs are traded on the open market like stocks and bonds. ETFs are popular investments because they are relatively inexpensive and can be easily bought and sold.

Exchange-traded funds (ETFs) can be a great investment vehicle for small and large investors alike. These popular funds, which are similar to mutual funds but trade like stocks, have become a popular choice. However, there are some disadvantages that investors need to be aware of before jumping into the world of ETFs.

First, you need to open a brokerage account. Once you decide which ETF you want to buy, go to the section of the brokerage firm's Web site for trading stocks and ETFs. Insert the symbol (or get it from the Web site) and the number of shares you want to buy. From that point, you are offered a number of choices.

ETFs that invest in equities are generally more liquid if the securities are well-known and widely traded. Because these stocks are well-known, they are commonly held in investors' portfolios and trading volume on them is high, which makes their liquidity high as well.