If you own a target-date fund in your retirement account or have ever heard a coworker say they just buy the S&P 500 and stop worrying about it, you have already brushed up against exchange-traded funds. On June 2, 2026, the Vanguard S&P 500 ETF became the first fund of its kind to cross $1 trillion in assets, a milestone that shows just how central these funds have become to the way regular people put their money to work.An ETF, short for exchange-traded fund, is a basket of investments such as stocks or bonds that you can buy and sell on a stock exchange in a single trade.When you buy one share, you own a small slice of everything inside the fund, whether that is 500 companies, a chunk of the bond market, or a stake in gold.The structure lets you spread a few hundred dollars across hundreds or even thousands of holdings without buying each one yourself.Legally, an ETF is a registered investment company that pools money from many investors, much like a mutual fund, except it trades on an exchange throughout the day like a stock.That blend of instant diversification and stock-like trading is why U.S.-listed ETFs held $15.7 trillion in assets at the end of May 2026.How an ETF WorksMost ETFs are built to track an index, which is simply a published list of investments.The Vanguard S&P 500 ETF, ticker VOO, tracks the 500 large U.S. companies in the S&P 500, so its value rises and falls with that group as a whole.Because the fund mirrors a list instead of paying a manager to hand-pick winners, it can run at a very low cost.You buy and sell ETF shares through a brokerage account during market hours, entering a ticker symbol and the number of shares or dollar amount you want, exactly as you would with a single stock.The price updates second by second, unlike a mutual fund, which only sets one price after the market closes each day.How ETFs Differ From Mutual FundsETFs and mutual funds both pool money to buy a diversified portfolio, but the way they trade and the way they are taxed set them apart.A mutual fund trades once a day at a single closing price, while an ETF trades all day at whatever price buyers and sellers agree on.ETFs are also usually more tax-efficient, because the way they swap securities in and out tends to trigger fewer taxable capital gains distributions than a comparable mutual fund.That advantage matters most in a regular brokerage account rather than a tax-sheltered retirement account, where gains are not taxed year to year anyway.If you are deciding where to hold which fund, we've broken down the most tax-efficient ETFs for a taxable account, including why broad index funds tend to win on this front.The Main Types of ETFsThe simplest and most popular ETFs are broad stock index funds that track the entire U.S. market or the S&P 500.Bond ETFs hold government or corporate debt and are often used to add stability and steady income.Sector and theme ETFs concentrate on one slice of the economy, such as technology, energy, or artificial intelligence.Dividend ETFs, like the Schwab U.S. Dividend Equity ETF, focus on companies that pay reliable cash to shareholders.There are also commodity ETFs that hold assets like gold, and a fast-growing group of spot crypto ETFs that track Bitcoin and other digital coins.A word of caution applies to leveraged and inverse ETFs, which use borrowing and derivatives to amplify daily moves and can lose value quickly, so they are built for short-term trading rather than buy-and-hold investing.What ETFs Actually CostThe main cost of owning an ETF is its expense ratio, an annual fee taken straight out of the fund's assets.VOO charges just 0.03%, which works out to $3 a year on a $10,000 investment.The older SPDR S&P 500 ETF charges 0.09%, or $9 on that same amount, for exposure to the identical index.Across the industry, passively managed ETFs averaged roughly 0.12% in fees and actively managed ones about 0.49% as of 2024, based on SEC data.Most major brokerages now charge zero commission to buy and sell U.S.-listed ETFs, so the expense ratio is the number that truly deserves your attention.Over a few decades, the gap between a 0.03% fund and a 0.50% fund can quietly cost you thousands of dollars in lost returns.The Risks Worth KnowingAn ETF removes the danger of betting everything on a single company, but it does not remove market risk.If the S&P 500 falls 20%, a fund that tracks it falls roughly 20% too.Narrow sector and single-theme funds can swing far more violently than a broad-market fund, which is the tradeoff for chasing a hot corner of the market.The in-kind trading machinery that normally keeps an ETF's price glued to its holdings can also strain during extreme market stress, occasionally pushing the trading price away from the real value of what the fund owns.How to Buy Your First ETFGetting started takes about as long as opening a checking account online.You open a brokerage account, move in some cash, search for the ETF's ticker, and place a buy order, often for as little as the price of one share or even a fractional slice.Before you commit, read the fund's one-page summary, check the expense ratio, and confirm what the fund actually holds so you are not doubling up on stocks you already own.If you want to compare platforms first, we've ranked the best brokers for ETF investing on commissions, available funds, and research tools.One straightforward starting point is Charles Schwab, which offers commission-free online ETF and stock trades alongside a large lineup of its own low-cost funds, so you can open an account and buy your first share in one place.Once your account is funded, you can begin with a single broad-market fund and layer in more specific ETFs as you figure out what fits your goals.For ideas on where to start, we've highlighted the best ETFs to buy across categories ranging from total-market funds to dividends and bonds.The momentum behind these funds shows little sign of slowing, with Citigroup projecting that U.S. ETF assets could more than double to $25 trillion by the end of the decade.