SOLVED: Are ETFs Really for Me?

They slice! They dice! They're cheaper than index funds! ETFs, which are mutual funds that trade like stocks, are the hottest tickets in the mutual fund business. But they're not for everyone.

Before you invest, ask yourself several questions:

• How often do you buy or sell investments?
• How long do you intend to hold your ETFs?
• How much do you want to invest?

ETFs are the right choice if you make only one or two trades a year, invest a big chunk of cash and hold on for a long time. Although ETFs typically have lower expenses than index funds, you have to pay a commission when you buy or sell them, so you want to minimize trading costs.

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Commissions range from about $5 to $25 per trade if you go with a discount online broker. If you plan to trade ETFs frequently, try FolioFn, a firm that lets you make hundreds of trades for a flat fee that starts at $199 per year.

Buying ETFs doesn't make sense if you invest a small amount every month or every quarter. If you invest less than $30,000 a year in three or four installments, it could take years to benefit from the lower expenses of ETFs, says Vanguard's Noel Archard. In that case, it's better to stick with index funds. Expenses will be slightly higher, but you'll avoid commissions.

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