So what's so appealing about ETFs? Like mutual funds, ETFs offer exposure to a wide array of investments, from the broad stock and bond markets to individual sectors. But they're often cheaper and more tax friendly than traditional funds. ETFs can also be bought or sold at any time of day since they trade on an exchange similar to stocks.
A word of caution: Many brokerage firms charge commission fee every time an investor buys or sells ETF shares and experts warn that the sum of those fees can virtually cancel out the low-cost and tax-efficient advantages. But there are some exceptions: Vanguard, Fidelity and Charles Schwab recently began offering commission-free ETFs.
So whether you're looking to build a diverse portfolio from the ground up or take your current investments to the next level, ETFs offer cheap and flexible options.
There are over 1,000 to choose from and more are being added every day. More than 230 new ETFs were launched in 2010, and 770 more are in the pipeline, said Matt Hougan, president of ETF analytics and editor of IndexUniverse.
We asked investment and industry experts to share their ETF recommendations.
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