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Why ETFs Are So Popular (And Why You Should Use Them)

By Dan Caplinger and Mike Klesta - Feb 23, 2014 at 10:40AM

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Exchange-traded funds have some key advantages over mutual funds that have made them more popular than ever. Find out why they might be right for you.

Exchange-traded funds have skyrocketed in popularity in recent years, as more investors have used them as a centerpiece of their investing. But are ETFs right for you?

In the following segment from their video guide to investment planning, Motley Fool director of investment planning Dan Caplinger talks with Fool markets/IP bureau chief Mike Klesta about how ETFs have taken over the investing world and whether they make sense for most investors to use. Dan notes that many are drawn to the freedom that ETFs offer over mutual funds, with the ability to react to up-to-the-minute market moves rather than waiting for once-daily trading opportunities of traditional mutual funds. Yet the true advantage Dan cites is the low cost involved with ETFs, especially with many brokers offering ETFs from BlackRock (BLK 0.05%), State Street (STT -0.51%), Vanguard, WisdomTree (WETF -0.74%), and other ETF-manager partners at no commission. Dan concludes that even though many investors misuse ETFs to trade more frequently than they should, ETFs are here to stay, and used correctly, they can enhance your investment returns.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends BlackRock and WisdomTree Investments. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

BlackRock, Inc. Stock Quote
BlackRock, Inc.
BLK
$696.27 (0.05%) $0.34
State Street Corporation Stock Quote
State Street Corporation
STT
$70.30 (-0.51%) $0.36
WisdomTree Investments, Inc. Stock Quote
WisdomTree Investments, Inc.
WETF
$5.35 (-0.74%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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