Funds as building blocks

Exchange-traded funds package exposure. The wrapper matters as much as the index: replication, costs, distribution policy.

Tracking difference

The gap between fund and index after costs. It is a better measure of real cost than the headline expense ratio.

Income is either reinvested or paid out. Tax treatment depends on the fund, account and investor’s jurisdiction.

A broad fund can form a portfolio core, with narrower exposures at the edges. Review concentration, overlap and total costs.

SPDR S&P 500 ETF · AMEX:SPY

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ETFs in context

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