Quick and cost-effective diversification
ETFs provide a wide choice of investment options, including various sectors, asset classes, geographical locations and investment strategies. ETFs typically track the performance of a basket of securities underlying the benchmark index - the benchmark can be made up of individual stocks, bonds or other securities such as commodities. Therefore, owning a few ETFs can be a quick way to diversify one's portfolio.
Attempting to build a diversified portfolio by buying individual stocks, bonds and other investments can be more costly, risky and time consuming than diversifying with ETFs. For example, if an investor would like to have a diversified portfolio of stocks and bonds one could use a stock ETF and a bond ETF rather than researching, buying and managing a number of individual bonds and stocks.
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