The most famous investor of all weighs in on exchange traded funds (ETFs) and gives his opinion of the investment tool.

Warren Buffett suggests that traditional index mutual funds are a more appropriate investment tool for the average investor than ETFs.  His primary reason for this suggestion is that there is no pressure from brokers to engage in frequent trading, states Amanda B. Kish of the Motley Fool Champion Funds.

Although some may agree with Buffett, there are numerous reasons why ETFs make far more sense than mutual funds. Just to name one, they enable investors to gain exposure to certain markets and sectors that are essential to success. The problem with ETFs arises when individual investors utilize them to be market timers.  Research has proven that individual investors most likely make the wrong decisions and fail at timing the market correctly.

This doesn’t mean that ETFs are not an excellent investment tool.  As with all other investments, investors should educate themselves and know all the costs and benefits that are associated with their choices.

ETFs give investors more control and more choices, and they give them the tools to know and understand what they’re doing. It’s up to them to use ETFs wisely.

Tags: Mutual Funds, Sector ETFs