Are exchange traded funds (ETFs) the investing wave of the future?
The short answer: yes.
The ETF market has grown tremendously in the last 5 years.
Here are a few good reasons:
1). ETF's have the trading flexibility of a stock, as well as the diversification similar to a mutual fund.
For example, you might be interested in a broad health care sector, and you would like to purchase shares of an investment that tracks that sector at any time during the day. You would be able to accomplish this by choosing a health care ETF. You could even do this on margin or short the investment, if you desire.
2). ETF's usually have low total costs compared to mutual funds.
Mutual funds are weighed down with fees. Front, back, and level loads, in addition to continuous 12b-1 fees, etc., etc. With ETF's, the internal fees are lower due to the efficiency and ease of managing the portfolio.
3). ETF's are tax efficient.
Because of low turnover due to index tracking, and internal structure, ETF's have minimal capital gains distributions otherwise know as ?phantom income? compared to mutual funds.
4). ETF's come in all kinds of varieties.
ETF's provide multiple choices spanning global indexes, in addition to domestic indexes, sectors, and industries.
5). ETF's are highly transparent.
What you see is what you get. Securities in an ETF portfolio are made public everyday.