What are General Market ETFs?

General market ETFs seek to capture the movements of the market as a whole by tracking major market indices.

General Market ETFs track the performance of major market indices such as the S&P 500 (SPY), the Dow Jones Industrial Average (DJIA), and NASDAQ-100 (QQQQ). Most funds that track indexes do so by purchasing shares of all the publicly traded companies within an index, usually proportionally weighted by the market cap of the company (but there are other popular weighting methods).

An investor who owns shares of the ETF then gets market exposure to all of these companies, even with a small initial investment amount. Such funds make diversification much easier and more affordable for all levels of investors.

A general market index ETF would refer to the use of a broad market index and not a sector-specific index. Investors can use such a product as a core holding, and perhaps their entire portfolio, especially if they have faith in the Efficient Market Hypothesis, which basically says that a market portfolio with low fees will outperform other investments over the long-haul.

What is Market Discipline?
What Happens if I Don’t Diversify my Portfolio Sufficiently?