How to explain ETFs to kids

ETF stands for exchange-traded fund, and it's another thing you can invest in. ETFs are similar to mutual funds because they are an easy way to buy multiple different assets all at once. For example, you can buy an ETF that follows the 500 biggest companies in the US. Instead of having to buy 500 different stocks, you can just buy one ETF and own a teeny-tiny sliver of each of those 500 companies.

There are thousands of ETFs and each one can have a different theme like “the car industry” or “companies in Europe.” ETFs usually charge a very small fee to pay the professional managers who are monitoring all of the stocks and picking the ones that match the theme of that particular ETF. 

ETF investing allows the investor to own shares across an industry, region, or company type without spending days researching or selecting specific companies to invest in. You benefit from the diversity of owning a few stocks in a particular market classification and can track the growth of an industry at the same time.

Takeaway

An ETF is a way to easily invest in multiple companies at once. You pay a small fee to a company that monitors the performance of the ETF and researches the industry or region the ETF is focused on.