ETFs: five hundred companies in one go

What an ETF is, in one sentence

An ETF is a basket of many assets that trades on an exchange like a single share. You place one order, you pay one price, and what you get is a proportional sliver of everything inside the basket.

Most of the ones a beginner should care about are index funds: instead of hiring someone to pick winners, they simply hold whatever is in an index, in the same proportions, and update when the index updates. There is no judgement being exercised and that is the feature, not the compromise.

Why it diversifies, and what it does not fix

Diversification is one of the very few things in finance that is free. Owning five hundred companies instead of one does not lower your expected return — the average is the same — but it removes the possibility that a single fraud, a single bankruptcy, a single bad CEO takes your money with it. One company out of five hundred going to zero costs you a fraction of a percent.

Be honest about the limit, though. Diversification protects you from a company. It does not protect you from the market. When everything falls at once, and it does, a broad ETF falls with it. Anyone selling you an ETF as protection against down years is selling you something else.

Fees: the small number that decides a lot

Every fund charges an annual fee, taken quietly out of the fund itself, so you never see a receipt. That is the expense ratio, and it is the one cost you control completely before you buy anything.

Do the arithmetic once and you never forget it. On 50,000 pesos, 0.25 % a year is 125 pesos. Two percent a year is 1,000 pesos. That is eight times more, charged every year, in good years and bad, on money you may hold for thirty years. Over a working life, the difference between a cheap index fund and an expensive managed one routinely adds up to a large fraction of the final pot — which is why the fee is the first thing to look at and the last thing to compromise on.

Two real examples

The oldest ETF on the American market is SPY, which tracks the S&P 500 index. Its gross expense ratio is 0.0945 % a year and it launched in January 1993; as of 20 August 2026 State Street reported it holding around 818 billion dollars. Roughly nine pesos a year per ten thousand invested, for a slice of five hundred large American companies. That is what scale does to a price.

The Mexican equivalent is NAFTRAC, which trades on the BMV in pesos and tracks the S&P/BMV IPC — the 35 companies BlackRock describes as the Mexican large-cap index. Its stated management fee is 0.25 % a year, the fund dates back to April 2002, and it distributes dividends rather than reinvesting them.

The comparison teaches more than either fact alone. NAFTRAC costs a little more and holds far fewer companies, because the Mexican market is smaller — but it quotes in pesos, so if you earn in pesos there is no exchange rate sitting between you and your return. The S&P 500 has five hundred names and a currency layer on top. Neither is the right answer; they are different bets and it is worth knowing which one you are making.

That currency layer reads better drawn than explained: NAFTRAC against SPY, the same year, in two currencies. All three lines start at the same 100 and what you compare is how much each one moved; the third is the dollar, which is exactly what gets in the middle when you buy in one currency and spend in another. Each one also has its own card: NAFTRAC and the S&P/BMV IPC, the index it tracks.

How it differs from buying single shares

Buying an individual share is a claim about one company: that you know something the price does not. That is a real thing to attempt, and it is a job, with quarterly reports to read and a thesis to keep testing. Buying a broad ETF is the opposite claim — that you do not know which company wins, so you will own all of them and take the average.

Three practical differences follow. You need one decision instead of dozens, so there is far less to get wrong. You get the market’s return minus a tiny fee rather than your own results, which for most people is an upgrade. And you cannot outperform, ever, by construction — which only bothers you if you were realistically going to.

There is one thing an ETF does not remove: it trades on an exchange, so it has a bid-ask spread like anything else. On a large, liquid ETF that gap is negligible. On a small, thinly traded one it is a real cost, paid twice — going in and coming out.

The short version

An ETF is a basket that trades like a share. Index ETFs hold a whole market for a fee measured in hundredths of a percent, which kills the risk of any single company sinking you and leaves you exposed to the market itself, as it should. Check the fee, the index and the number of holdings, buy it through a regulated brokerage, and then do the genuinely hard part: nothing, for years.