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What's an exchange-traded fund?

Exchange-traded funds, or ETFs, were invented to combine the simplicity and low costs of index mutual funds with the flexibility of individual stocks. Unlike most mutual funds, ETFs trade on exchanges, where you can buy and sell them anytime the market is open.

With ETFs you can track broad market indexes such as the S&P 500, gaining instant diversification. You pay super-low fees. And you don't get hit with a tax bill (most of the time) until you sell.

There are some 700 ETFs on the market today.

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