Exchange traded funds (ETFs) have gone farther down the food chain than traditional index funds. The wide array of funds available make it easier to own different types of investments and ride trends in the market. Ian Salisbury for Wall Street Journal writes one of the main criticisms facing ETFs is that they may lead Main Street investors down the wrong path by betting on narrow areas of the market that are hot at the moment. We should give investors a bit more credit and what about all of the other "hot" investments investors can get in trouble with? It’s not just narrow focused ETFs that could potentially get investors in trouble. A positive to this targeted investing is that ETFs provide exposure to alternative assets like gold and foreign currency.
ETFs currently track indexes, there is no manager picking the stocks, which allows lower fees for ETFs. The trading flexibility of ETFs allows the funds to be traded all day, throughout the day without the fees and redemptions associated with regular mutual funds. But it is important to note commissions are charged through your broker for the trades. Another area where ETFs look good is with their tax advantages. Capital gains taxes are of a limited amount.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.