Understanding ETF basics

Before we get any further, there are a few concepts that are important to know before you buy your first ETFs from Amtrades.

• Passive vs. active ETFs: There are two basic types of ETFs. Passive ETFs (also known as index funds) simply track a stock index, such as the S&P 500. Active ETFs hire portfolio managers to invest their money. The key takeaway: Passive ETFs want to match an index’s performance. Active ETFs want to beat an index’s performance.
• Expense ratios: ETFs charge fees, known as the expense ratio. You’ll see the expense ratio listed as an annual percentage. For instance, a 1% expense ratio means that you’ll pay $10 in fees for every $1,000 you invest. All things being equal, a lower expense ratio will save you money.
• Dividends and DRIPs: Most ETFs pay dividends. You can choose to have your ETF dividends paid to you as cash, or you can choose to have them automatically reinvested through a dividend reinvestment plan, or DRIP.