Episode Details

In this episode of Money Lessons, Andy explains the exchange-traded fund — the ETF — the vehicle most people now use to own a whole index in a single trade. 

He traces it back to the first one, State Street's SPDR, launched in 1993 to track the S&P 500, and shows how an ETF differs from the index mutual fund Jack Bogle created in 1976: one trades all day on an exchange like a stock, the other prices just once, after the close. 

Andy pulls back the curtain on the creation-and-redemption process — the quiet arrangement with large firms that does the real index buying and keeps an ETF's price tied to the value of the stocks it holds. The takeaway: an ETF lets you trade like a stock, but the soundest way to own one is to hold it like a long-term investor.

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