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A mutual fund alternative: Exchange-traded funds, or ETFs
No such luck.
While the industry cleans up its act (keeping in mind that not all mutual funds have acted improperly), what's the small investor to do?
During these uncertain times, many are turning to exchange-traded funds, or ETFs.
Basically, they are a twist on the plain old index fund, and like an index fund, ETFs offer a cheap, simple way to invest across a broad spectrum of the U.S. stock market.
Most exchange-traded funds represent a portfolio of stocks designed to track one specific index. Other ETFs allow you to invest by industry sector, size, region or investment style.
Their are more than 100 exchange-traded funds sold on the various stock exchanges. They can be bought and sold by your broker any time of the trading day, unlike mutual funds, which can be traded only once a day.
Exchange-traded funds are less expensive to run than most mutual funds because they are passively managed, which eliminates the need for management fees. Plus they are tax-friendly; you aren't likely to get hit with a sizable taxable capital gains distribution as you may with ordinary funds. Since these funds represent indexes, which generally have low turnover, most of your capital gains will come when you sell your shares.
Just remember, you'll pay a broker's commission every time you buy shares.
You can research ETFs online for free by going to Morningstar.com or ishares.com.
Overall, exchange-traded funds offer a practical choice for a wide range of investors, from conservative to aggressive, beginners to experienced.
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