An exchange-traded fund (ETF) is a basket of securities (such as stocks) that often exist for the purposes of tracking an underlying index. ETFs offer the best attributes of two popular assets: They have the diversification benefits of mutual funds while mimicking the ease with which stocks are traded.

Because ETFs provide exposure to thousands of stocks at a very low cost, they offer a great alternative for investing in multiple companies without the financial burden of buying individual stocks. One example is the Vanguard Total Stock Market ETF, which allows you to own stock in 3,000 different companies of all sizes, letting you mirror the US equity market for less than $150 per share.

An ETF can own hundreds or thousands of stocks across various industries, or it could be isolated to one particular industry or sector. Some ETFs focus only on US stocks, while others diversify across the globe.

ETFs essentially let you own fractional shares of a lot of different companies, allowing you to spread your risk and lower your costs. This approach also saves you time in researching hundreds of stocks while attempting to balance a perfectly diversified portfolio. Simply buy one or two ETFs and you’re good to go.

Imagine wanting to buy stock in Amazon and Netflix, for example, with only $1,000 available in your account to invest. Well, a single share of Amazon costs around $2,500 while one share of Netflix will set you back about $425. With $1,000 you couldn’t possibly invest in both stocks. This is where ETFs come in. Because both stocks are included in the S&P 500 index, you could simply invest in any ETF that tracks the S&P 500 and own a stake in both of these companies in addition to 500 others, including Microsoft, Apple, and Berkshire Hathaway. There are several of these funds available to traders, some of which trade for under $75 per share.