According to Investopedia, about 80% of mutual funds fail to outperform the S&P 500. So why take an 80% risk of underperforming the stock market with mutual funds when there are index ETFs, like the SPY, that track the S&P 500? The choice seems pretty clear! An S&P 500 ETF like the SPY is very easy to invest in and should outperform most mutual funds. Please note that index ETF's do have a small expense fee which will cause an index ETF like the SPY to slightly underperform the S&P 500. But the trading costs associated with creating the S&P 500 in your own portfolio would be far greater then the SPY's expense ratio. With this small fee an S&P 500 ETF should still outperform most mutual funds due to the already high percentage of mutual funds that can't beat the S&P 500.

Not only do index ETFs outperform most mutual funds, but they also have lower expenses ratios. Through our research, we found that on average mutual fund expense ratios are about 3 times more then the average Index ETF expense ratio. CNN Money claims that the average mutual fund expense is 1.35% and the average ETF expense is 0.41%. If index ETF performance alone isn't enough to convince you, hopefully the lower expense ratio of ETFs will. Also remember that expenses are usually not included in a funds reported performance.

Although index ETFs, like the SPY, perform much better then most mutual funds, the Market Flavor sample stock portfolio has greatly outperformed the S&P 500. We utilize quality stocks with good valuations and high growth potential to create a winning stock portfolio. Along with those top notch stocks we use different ETFs to give us access to strong industries and foreign countries. Give our simple online investment service a try!

Read more about the SPY index ETF at Yahoo Finance.

Below we have constructed a list of ETF's that are commonly used to invest in different indexes, industries, countries, bonds, and commodities.

Most Popular ETFs list
Nasdaq 100 ETF - QQQQ
Dow Jones ETF - DIA
Short Term Treasury Bond ETF - SHY
Short Term Bond ETF - BSV
Aggregate Bond ETF - AGG, LAG
Intermediate Term Bond ETF - BIV
Long Term Bond ETF - BLV
Energy ETF -XLE, VDE
Crude Oil ETF - USO
Gold ETF - GLD, IAU
China ETF - FXI
Europe ETF - VGK
Emerging Markets ETF - EEM, VWO
Latin America 40 ETF - ILF
India Fund - IIF
Canada ETF - EWC
Financial ETF - XLF, VFH
Russle 2000 Growth ETF - IWO
Natural Gas ETF - UNG
Brazil ETF - EWZ
REIT ETF - VNQ

Here is an article by fool.com that goes into more detail about how ETFs and Mutual Funds work.

Tags:   ETF Investment Strategy  

Posted on December 8, 2007 11:16 PM | Digg | del.icio.us