ETFs are investment funds which are traded like stocks, and therefore can offer more versatility for the average investor. However, investors should consider all of the pros and cons before considering ETFs.
On the positive side, ETFs trade more frequently than traditional mutual funds, which means investors can jump in when the timing is right. They can fit more easily into your asset allocation needs for your retirement accounts, and they are easier to understand than many mutual funds.
On the downside, ETFs tend to be more expensive, and they don't offer the tax efficiency offered by the more traditional mutual fund accounts. Still, for those who are looking to diversify a portion of their 401(k)s, ETFs could be just the thing.
For more on ETFs, visit SmartMoney.com.
By Bob Bicknell and Ray Hennessey