Investing In Exchange Traded Funds (ETFs)

An Exchange Traded Fund (ETF) is a fund that seeks to track a stock index. For example, Spyders (ticker SPY) is an ETF that seeks to track the S&P 500. So if the S&P goes up 10% a year, Spyders will go up 10% as well.
 
ETFs are gaining in popularity since they are a viable alternative to mutual funds. Compared to mutual funds, ETFs have very small expense fees. For example, ETFs that track the S&P 500 (like SPY and IVV) have expense fees under .10%, whereas most mutual funds have expense fees of 1-1.5%. Since most mutual funds perform worse than the S&P 500, it makes sense for most investors to just buy ETFs.
 
ETFs are also very tax efficient. Mutual funds cause their investors to endure capital gains taxes each year since the mutual fund often buys/sells stocks. Since the ETFs just passively track a market index, there is not nearly as much buying/selling within the ETF. It is very easy to just buy an ETF, hold it for 30 years, and then just sell it then if you need the money. Talk about tax efficient!