ETFs: Are They Right For You?

If you’re looking to invest your money but don’t want to deal with the risk of owning individual stocks or the often sluggish performance of mutual funds, consider ETFs, or exchange-traded funds.

ETFs have been around since the early ‘90s, but they’ve exploded in popularity in recent years. Basically, they are a compromise between stocks and mutual funds. ETFs are like stocks in that they’re priced constantly throughout the trading day, not just at the close like mutual funds. But, like mutual funds, they aren’t tied to one holding and instead track a specific index, like the S&P 500.

Because they’re traded, ETFs can suffer from high brokerage fees. But recently, competition has kicked in and now brokerages are offering deals to bring down the price. For instance, Bank of America promises 30 free online trades with a combined $25,000 in checking, savings and CDs. And E*Trade, the online broker, offers 100 commission-free trades when you sign up.

Bottom line? ETFs are an option if you’re looking for the diversity of mutual fund and the price action of a stock. But, as in everything, beware of the fees.