What are 'Vanguard Exchange-Traded Funds'

Vanguard exchange-traded funds (ETFs) are a class of funds offered by Vanguard.

BREAKING DOWN 'Vanguard Exchange-Traded Funds'

There are currently more than 50 Vanguard exchange-traded funds, which are traded, like any other shares, on the exchanges such as the New York Stock Exchange or Nasdaq. Their underlying indexes cover both individual sectors, such as materials and energy, and domestic and international indexes.

The Vanguard exchange-traded funds were previously known as Vanguard Index Participation Receipts (VIPERS). In their current form, Vanguard ETFs aim to track their underlying indexes as closely as possible and offer the flexibility of intraday trading.

By developing this class of low-cost funds, Vanguard sought to bring its leadership in the passive management market to the ETF space.

Vanguard explains that the ETFs, with sometimes thousands of stocks or bonds in a single fund offer more flexibility for portfolios – with the benefits of an index fund but more control for the individual investor, all supported by Vanguard's affordable customer service.

Vanguard ETFs Compared with Stocks and Mutual Funds

Owning an ETF is similar to a mutual fund, with baskets of individual stocks or bonds that offer the same  built-in diversification and low costs. The funds are also tradable, like individual stocks.

Compared with stocks and bonds, however, ETFs offer less risk and less ongoing maintenance, according to Vanguard. Its mix of preselected stocks or bonds means that if one stock or bond iin the fund performs poorly, others are likely performing well. Also, investors can leave security selection to professional fund managers. 

True, as noted, that sounds a lot like a mutual fund. But compared with standard mutual funds, ETFs have some unique characteristics that might make them appealing for some investors, according to Vanguard.

In addition, it points out that both mutual funds and ETFs are less risky than investing in individual stocks & bonds; offer a wide variety of options to meet specific investment goals; are managed by portfolio professionals; and, at Vanguard, are commission-free.

But ETFs require smaller investment minimums to start with. They also offer real-time, intraday pricing, assessing minute by minute changes, whenever they're bought and sold, as opposed to mutual funds, which are only priced at the close of a trading day.


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