What About ETFs?
Exchange-traded funds can be a good deal—but they're not for everyone
By David Futrelle

(MONEY Magazine) – The big new thing in indexing is exchange-traded funds, which are index portfolios that you buy or sell just like stocks. The best of them are supercheap— iShares S&P 500 Index (IVV) costs 0.09% a year, half the price of the Vanguard 500—and they can be traded instantly, sold short or bought on margin. And ETFs track an astonishing variety of indexes, from biotech to Brazilian stocks. But for the kind of investing most of us need to do, traditional index funds still make more sense.

To buy an ETF, you have to use a broker, who will charge you a commission. If you use a discount broker and pay $20 to make one $10,000 investment, no big deal. If you invest a little bit of money in the market every month, you'll pay that $20 every time. In that case, even a cheap ETF can actually be much more costly in the end. —D.F.

NOTE: [1] The commission on an automatic investment plan is $4; the top base rate for one national discount brokerage is $30. SOURCES: Morningstar, MONEY reporting.