How ETFs Work

Exchange-traded funds, or ETFs, are an easy way to begin investing. ETFs are fairly simple to understand and can generate impressive returns without much expense or effort. Here’s what you should know about ETFs, how they work, and how to buy them.

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once. Investors buy shares of ETFs, and the money is used to invest according to a certain objective. For example, if you buy an S&P 500 ETF, your money will be invested in the 500 companies in that index.

Liquidity is an important characteristic for any holding. Narrow bid-ask spreads reduce transaction costs and make it relatively easy to purchase investments near a given market spot price. Active markets also ensure that investors will be able to exit a position promptly at a reasonable price.

Steps to Investing in ETFs

1. Open a brokerage account.
2. Choose your first ETFs.
3. Let your ETFs do the hard work for you.

Seven Dividend ETFs

Individual stocks can provide income, but dividend ETFs are an easy way to gain exposure to a basket of dividend-paying stocks. We present below seven of the most popular dividend ETFs to invest in this year, ranked by order of assets.

1. Vanguard Total Stock Market ETF (VTI), $211.2 billion in assets, 1.3% annualized yield.
2. Vanguard Dividend Appreciation ETF (VIG), $52.8 billion, 1.6%.
3. Vanguard High Dividend Yield ETF (VYM), $32 billion, 3.1%.
4. Vanguard Total World Stock ETF (VT), $18 billion, 1.6%.
5. Schwab US Dividend Equity ETF (SCHD), $17.3 billion, 3%.
6. SPDR S&P Dividend ETF (SDY), $17.1 billion, 2.7%.
7. iShares Select Dividend ETF (DVY), $15.1 billion, 3.4%.

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