Description of image

Question 1

Exchange-traded funds (ETFs) are one of the most common building blocks for beginner investors. They were created as a way to combine the diversification of mutual funds with the trading flexibility of stocks. Historically, ETFs grew in popularity because they let investors buy a broad basket of securities in a single trade, often at low cost. Think of an ETF as a box that holds many individual assets -- for example, thousands of stocks that track a market index -- and you own a share of the box rather than each individual security. For new investors, ETFs make it easy to gain exposure to an entire market segment (like large U.S. companies) without needing to pick winners. Practical tips: check whether an ETF tracks an index (passive) or is actively managed, compare expense ratios, and confirm the ETF's liquidity (trading volume). Behavioral insight: many beginners benefit from starting with broad, low-cost ETFs to reduce decision fatigue and avoid concentration risk. This question checks your understanding of what an ETF actually is and how it differs from buying a single stock or mutual fund.

Which statement best describes an ETF?

Did You Also Know...

By Wise Wallet

The Dow Jones Industrial Average began in 1896 tracking just 12 companies, unlike the very different firms it follows today.