Exchange-Traded Funds1

Exchange-Traded Funds (ETFs) offer public investors an undivided interest in a pool of securities and other assets.Shares in an ETF can be bought and sold throughout the day on a securities exchange through a broker-dealer like LPL Financial. ETFs do not sell or redeem their individual shares at net asset value. Instead, financial institutions purchase and redeem ETF shares directly from the ETF, but only in large blocks, varying in size by ETF from 25,000 to 200,000 shares, called "creation units." Individual purchasers trade them on the markets in which they are available.

ETFs generally provide the diversification. Because ETFs can be acquired, held, and disposed of, some investors invest in ETF shares as a long-term investment for asset allocation purposes.

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What Else Should I Know About ETFs?

ETF Details 

ETFs offer shares that trade in the secondary market. Because ETFs are listed on exchanges, individual ETF shares can be bought and sold throughout the trading day at the current market price. The general level of stock or bond prices may decline, thus affecting the value of an equity or fixed income exchange traded fund respectively. 

Moreover, the overall depth and liquidity of the secondary market may also fluctuate. Therefore, value of the shares, when redeemed, may be worth more or less than their original cost. Due to market conditions, ETF shares trading on the exchange may be available for purchase at a premium or discount to NAV. 

Principal Risk 

An investment in an ETF structured as a mutual fund or unit investment trust involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks: not diversified, the risks of price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors. 

Although ETFs are designed to provide investment results that generally correspond to the price and yield of their respective underlying indexes, the trusts may not be able to exactly replicate the performance of the indexes because of trust expenses and other factors. 

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