There are plenty of reasons to invest in exchange traded funds (ETFs) but are they the right ones ? Read on to see if you should put your money where your thoughts are.

A portfolio of any type can prosper from ETFs, but are your reasons for adding them to your portfolio legit? Or are you just following the herd and trying to keep up with the latest investment product? Larry D. Spears for Money Morning gives four reasons to consider adding ETFs to your portfolio:

  1. ETFs Allow You To Focus Your Investments: Many ETFs represent large portfolios of stocks or bonds, typically tracking major indexes. But many others are narrowly focused and track niche markets which can give targeted exposure. [As ETF Industry Grows, Some Remain Skeptical.]
  2. ETFs Give Exposure To Hard-To-Reach Corners Of The Market: Areas such as commodities, currencies and global markets were difficult for the small investor to gain entree. Today, you can easily get exposure to all of these asset classes with one simple trade.
  3. More Trading Options: Want more oomph? Consider a leveraged ETF. Want to control the price you pay? Try limit orders instead of market orders. Want to use a trend following strategy? ETFs are great for that; read more about it here.
  4. Better Pricing Efficiency: ETFs can be instantly bought and sold at clearly quoted bid and ask prices. ETFs also have a tax advantage over other funds, because you only pay taxes on your own capital gains and dividends, with no taxable distributions generated by the actions of other investors. [ETF Portfolios: The Important Step You Should Not Miss.]

Tisha Guerrero contributed to this article.

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.