ETFs (Exchange-Traded Funds) which can be traded like stock at any time during market hours, have low expense ratios, have less risk than individual stocks, do not have some of the tax disadvantages of a regular mutual fund, do not pool investor capital, and are constructed so they are far less susceptible than "standard" mutual funds to the fraudulent behavior of some investors. Though they trade like stock, they are similar to sector funds and index funds in the construction of their portfolios.

If you are interested in sector and index investing or if you are a little afraid of the volatility of individual stocks, you might consider exchange-traded funds (ETFs). In a regular "open" mutual fund, investors buy shares directly from the fund. When they want to sell shares, they sell them back to the fund. Assets are held in a pooled account. An ETF is actually a mutual fund that trades (and is bought and sold any time during market hours) just like a stock. Investors buy shares from and sell shares to other investors just as if they were buying and selling stock. Your assets do not share a "pooled account" with other investors in the fund. There is no load or fee levied by an ETF when shares are bought or sold. The only costs for buying or selling are the same fees that are charged for stock transactions.

An ETF is actually a mutual fund that is traded on a stock exchange. ETFs are usually collections of stocks or bonds. For example, our own tracking list includes ETFs that combine groups of stocks in various US sectors (technology, real estate, utilities, Biotech, energy, healthcare, etc.), investment types and styles (Small-Cap Growth, Mid-Cap Value, Small-Cap value, Large-Cap growth, Consumer Non-Cyclical, US Treasuries, and so on), other countries or economies (Australia, Belgium, Germany, Hong Kong, Malaysia, Spain, Japan, etc), various multi-country regions of the world (Emerging Markets, The Pacific, Europe, Latin America), and Indexes (Dow Jones Industrial Average, S&P 500, Russell 2000, S&P 400, Dow Jones Utilities, etc), and others. A stock ETFs does not have the same kind of risk as an individual stock because it is a collection of stocks. For example, assume a utility ETF has 30 utilities in it. If any one of those utilities drops 40%, it will have little effect on your portfolio, even if your portfolio is fully invested in that one ETF. If all the other utilities in a 30-stock ETF remained constant, a 40% drop in one of those stocks would cause a drop of only about 1.33% in your entire portfolio. Thus, ETFs would generate fewer trade confirmations from the broker because the drop of an individual stock in an ETF probably would not be sufficient to trigger a stop-loss order. The stocks in the ETF would have to go down enough as a group to set off the stop-loss. ETFs can be monitored and charted throughout the day just like other stocks. Index ETFs closely match the behavior of their respective indexes. The behavior of sector ETFs is similar to that of no-load sector funds. The latter ETFs tend to be less volatile than individual stocks (a natural consequence of the fact that each ETF has more than one stock in it) and therefore do not have quite the profit/loss potential of individual stocks. However, the sector ETFs are more aggressive and volatile than fully diversified funds and have greater potential for profit or loss than those funds do because of their narrower focus. Though they do not have quite the same potential as individual stocks, they also have less risk and their potential for profit is nevertheless very attractive. For example, our stockdisciplines.com traders report that they have seen the Dow Jones Real Estate ETF gain over 30% in a year and the Dow Jones Technology ETF rise from about 38 to over 52 (or over 35%) between June and January.

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