01 Feb
2016

ETFs are popular among institutional investors to make rapid and large bets on sectors such as oil, gold, waste-management and semiconductors. They also use ETFs to hedge their bets on stocks, bonds, commodities and other securities. In 2007, managers introduced ETFs for use in retirement accounts such as 401(k) plans, as well as life- cycle ETFs, which invest more conservatively as investors near retirement. For individual investors, ETFs offer a wider selection of indexes than mutual funds.

ETFs have many strengths, but individual investors should be wary of investing in small amounts. Transaction fees cannot be avoided with ETFs as they can by going directly to a traditional no-load mutual fund, because ETFs must be bought and sold like a stock through a brokerage house. For substantial purchases, this transaction fee is an insignificant percentage, but for small purchases it becomes unreasonable. Investors are encouraged to save until they can invest at least $1,000 per ETF trade.

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