Exchange Traded Funds (EFTs) are gaining more prominence in investor’s portfolios. Mutual funds are expensive to own or to trade when compared to an EFT since average mutual funds have a 1.5% management fee attached.

Mutual funds are only required to declare their investment holding twice a year. Investors in funds are in the blind and not sure what they own until it is disclosed.

The first ETF’s was the S&P Depository Receipt known as SPDR (exchange symbol SPY). It was basically a stock that owned all 500 companies that make up the S&P 500 Index. So with one trade you could own the whole S&P 500 index.

Professional traders keep the market price of ETFs in line with the value of the underlying stocks by arbitrage of any price disparities. Unlike mutual funds where their price may get distorted in regard to the underlying value, ETFs give a fair deal.

Just like a stock, one can place loss protection in the form of stop-loss and limit order. You are able to see quotes on a real-time basis.

The expenses to own an ETF is negligible. For instance, fees for SPY (S&P 500 index ETF) are pegged at 0.09 percent.

When you own an ETF you know exactly what you have invested in. There is no surprise in regards to anything mysterious. There is complete transparency.

If there is a choice between mutual funds or ETFs, one should be aware of fund management past history and direction. How do they do in a bear market? How do they perform in a bull market? Do the beat the ETF for the same investment area?