Using ETF’s (Exchange Traded Fund’s) can be a profitable tool for investors. An ETF is a basket of stocks or commodities that trades like a stock. They are very similar to a mutual fund but can be traded throughout the day and often have cheaper management fee’s then mutual funds.

ETF’s give you access to stock markets and commodities that you might otherwise not have had access to. They provide portfolio diversification along with access to foreign markets, foreign currencies, and commodities. There are ETF’s for most major commodities including oil, gold, and silver, along with ETF’s for many foreign stock markets such as China, South Africa, and Russia. You can also buy ETF’s for specific industries in the US stock market. However, we find it’s more profitable to buy strong individual stocks within those industries. At Market Flavor we use ETF’s for diversified exposure to foreign stock markets and other commodities that are normally only accessible through futures.

One thing you’ll want to make sure and check when looking at an ETF is the expense ratio. A lower expense ratio leads to more profits or a smaller loss. Vanguard is known for their low ETF fees. It’s also good to check the top holdings of the fund. You might discover that you already own some of the stocks or that the top holdings aren’t that great, making the future profitability of the ETF questionable.

ETF’s can be a great source of portfolio protection during a correction or recession. Read our post about how to use short ETF’s to provide protection to your portfolio.

Here is a link to a great blog that talks about trends in the ETF world.