As an investor, you have many options for where to put your money. You could invest your money into certificates of deposit at your bank, in mutual funds or even in stocks. While all of these choices have their place in investor’s portfolios, there is one type of investment that outshines all of them. It is exchange traded funds.

What makes exchange traded funds the cream of the crop for investors to grow their wealth? It all has to do with how exchange traded funds, also known as ETFs, work. By putting your money into these investment vehicles, you are able to keep more of your money and have it grow and compound faster than with any other option.

Let’s get started and see why ETFs will grow your wealth fastest.

What Are Exchange Traded Funds?

Exchange traded fund came on the scene in the United States in 1993. They are most akin to a mutual fund in that they are an investment vehicle that holds a basket of underlying stocks or bonds. For example, an S&P 500 Index ETF would hold a combination of the stocks that make up the S&P 500 Index.

The major difference however between a mutual fund and an exchange traded fund is that with a mutual fund, you can only buy or sell shares at the end of the day. With an ETF, you can trade it throughout the day.

For the most part, ETFs are passive investments that track the benchmark index that make up their underlying holdings. But in 2008, The Securities and Exchange Commission allowed for ETFs to be actively managed. However, the majority of ETFs available to trade are still primarily passively managed.

What Makes Exchange Traded Funds So Great?

Now that you know what an exchange traded fund is, what are the reasons that this investment vehicle is so great? Here are the reasons.

#1. Ability to trade throughout the day. With an ETF, you can buy or sell your shares at any time when the market is open. With a mutual fund, you can only buy or sell at the market close. So if the market has a volatile day, you are stuck holding your mutual fund until 4pm after the dust has settled.