Imagine this scenario: You're looking for investments. You have some extra money -- perhaps $3,000 to $5,000 -- and you've got a hunch, too. You're intrigued by the financial services sector.
You see that Lehman Brothers
Here's the problem: You don't know which of these companies will fare best in the coming years, and you can't afford to invest in more than one or two at a time. Well, maybe technically you can, but you'd be spreading your money rather thin, and you'd then have to follow more companies than you're willing to. In fact, your lack of time is a major factor behind this dilemma. You just aren't able to dig into each company, even though you're pretty sure that as a group, they have nowhere to go but up -- eventually.
Fortunately, all is not lost. This is one scenario in which exchange-traded funds (ETFs), funds based on indexes that trade like stocks, can come in darn handy.
Consider, for example, the iShares Dow Jones Financials Index Fund
For an even more focused take on the industry, check out the KBW Bank ETF
If you're interested in other industries, you might want to look up what ETFs exist for them.
Finally, you can (and should) read all about ETFs in our ETF Center. They offer some valuable advantages over traditional mutual funds.