Many investors prefer a structure that provides broader exposure across multiple companies. This is where ETFs, become useful.

An ETF is essentially a basket of securities packaged into a single instrument that trades on a stock exchange. Instead of buying one company at a time, an investor can gain exposure to a group of companies through a single trade.

You may remember that earlier in the chapter, we discussed the QQQ ETF.

QQQ tracks the NASDAQ-100 index, which represents one hundred of the largest non-financial companies listed on the NASDAQ exchange. This includes companies such as Apple, Microsoft, Nvidia, Amazon, and many other technology-focused businesses.

When you buy one unit of QQQ, you are essentially gaining exposure to the entire group of companies that make up that index.

In simple terms, this means a single investment provides exposure to a diversified set of large global technology and innovation-driven companies rather than relying on the performance of a single stock.

This is the core idea behind ETFs.

Rather than researching and selecting individual companies, an investor can use ETFs to capture the performance of an entire index, sector, or region.

For example:

• Some ETFs track broad indices such as the S&P 500 (VOO), representing the largest companies in the United States.
• Others focus on specific geographies, such as Europe (IEV) or Japan (EWJ).
• Some provide exposure to emerging markets across multiple countries.
• There are also ETFs that track commodities like gold (GLD) or focus on particular strategies such as dividend-paying companies.

Another important consideration is how ETFs trade.

ETFs are listed on stock exchanges and trade throughout the day, just like regular stocks. Investors can buy or sell them during market hours at the prevailing market price, rather than waiting for an end-of-day NAV (this is for mutual funds).

Fun fact: 24% of global investors from India have ETFs in their portfolio.