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Q: I'm hearing a lot about ETFs lately. What are they?

Diana says...
Exchange-traded funds, or ETFs, are a close cousin to in­dex-based mutual funds, which track one of the many stock indexes such as the S&P/TSX 60 or the S&P 500. An ETF—a mini-mix of every stock in a particular index—trades as a stock on the ex­changes, so you need a broker to buy one. Traditional index-based mutual funds, on the other hand, don’t trade as stocks and can be widely purchased through banks, fund dealers, and financial advisors. ETFs have become popular because they come with much cheaper fees than standard mutual funds. To compare fees among ETFs or mutual funds, read the small print in the prospectus (the legal document for all securities offered for sale) that indicates “management expense ratios.”

Diana Cawfield is an award-winning financial writer with more than 10 years experience. Send her your questions here.