Exchange-Traded Funds

Last updated: April 13, 2016

ETFs

What is an ETF?

Exchange-traded funds are a cross between index funds and stocks. Like index funds, ETFs hold baskets of securities that follow indexes. Unlike mutual funds, which are priced just once a day (at 4 p.m. eastern time), ETFs trade just like stocks throughout the trading day.

  • Because you can buy as little as a single share of an ETF, the minimum for owning an ETF is typically far less than for owning a mutual fund (many ETFs trade for $10 a share or less).

The Role of an ETF

While ETFs make sense for individual investors, they have been slow to infiltrate the 401(k) market. Initially, retirement-plan administrators raised concerns that ETFs, with their all-day trading structure, would create a record-keeping nightmare.

  • Their low cost is appealing, particularly to sponsors of small and midsize plans looking for ways to hold down expenses.

  • They are less appealing to large plans that already benefit from rock-bottom fund fees due to their large volume and institutional pricing.

  • So far, ETFs are the exception rather than the rule on most 401(k) investment menus, but that could change in the future.

*The information on this page is credited to IPT and Kiplinger. Their original materials are made available on the Kansas Securities Commissioner's website.

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