ETF stands for Exchange-Traded Fund. They invest in a basket of assets tracking an index, just like index funds. The difference is how they are bought and sold: they trade on the stock exchange in real time. If at 3:34 PM you see the ETF is priced at $453 and you click buy, you buy it instantly at that price.
Advantages:
- Immediate execution — the price is known at the moment of purchase.
- Slightly lower TER than equivalent index funds.
- Enormous variety — there are ETFs for very specific themes: robotics, water, cybersecurity, renewable energy, specific countries, industrial sectors...
Disadvantages:
- Switching from one ETF to another is a taxable event in most countries: you would need to sell, pay tax on any gains, and reinvest what remains. This slows down compounding.
- Many brokers do not allow fractional purchases — you would need the exact amount to buy a whole unit.