An exchange-traded fund (ETF) is a basket of investments, made up of assets such as stocks or bonds, that lets you invest in many securities at once.

ETFs are generally passively managed, meaning they track an existing index, rather than a portfolio manager picking investments for the fund. Passively managed funds typically have lower fees and tend to outperform actively managed funds.

There are many characteristics of ETFs that make them a popular choice for beginner investors, but as with any investment, ETFs aren’t a one-size-fits-all solution. You’ll want to evaluate how an ETF fits into your portfolio before clicking “buy.”

1. Diversification: Since ETFs pool many companies into one investment, they allow you to diversify your…