What Is An ETF?

ETF stands for Exchange Traded Funds -- these are funds that trade on the stock exchange just like any stock. And you follow the same procedure at your online broker to buy an ETF as you would any stock like IBM or GE. It should cost you between $4 and $10 per trade.

ETFs are not a secret, but your investment professional doesn't make any money from them, so most don't use or recommend them.

Each ETF is a "basket" of stocks that represent a particular index. For example if you wanted to own every stock in the S&P 500 Index, you would by an ETF that trades using the symbol "SPY" you would own 500 stocks through this one stock.

With ETFs you can invest in practically any market you want. Some of the most popular indexes are the S&P 500 (tracks the largest U.S. public companies), the Russell 2000 (tracks some of the smallest U.S. public companies) and the Morgan Stanley Europe Asia Far East (EAFE) index, composed of companies in developed foreign countries. ETFs also allow you to invest in real estate, bonds, commodities, sectors and other markets.

Mutual funds are about 6 times more expensive than ETFs because they hire pros who try to select a few stocks within the index that will "beat" it. But when you invest in an index fund, you basically get the exact returns of the index.

Since computers (not humans) manage the stocks in an ETF, the fees are very low. MarketRiders portfolios use the best ETFs based upon fees and turnover (which turns into taxes).