ETFs an Excellent Alternative to Traditional Mutual Funds

In the early 90s the American Stock Exchange experienced a stroke of genius and came up with the idea of the Exchange Traded Funds or ETFs. With the ETF, the AMEX created a hybrid between stocks and mutual funds. This ushered in a new era for the individual investor.

The original ETFs were the Standard & Poor's Depositary Receipts (SPDR), Diamonds and the NASDAQ-100 Index Tracking Stock. The Standard & Poor’s Depositary Receipts or Spyders as they are called is a unit investment trust, which buys and holds shares in the companies of the S&P 500 Index. Diamonds do the same with the Dow Jones Industrial Average stocks while the NASDAQ-100 Index Tracking Stock is self explanatory. In a single word, what all this means to the individual investor is diversification. The investor can now buy 100 shares of SPDRs and have the portfolio diversification of the S&P 500 index.

Since their inception, ETFs have become so popular they are among the most heavily traded stocks on the exchanges. Over the past 12 years, the number of available ETFs have grown. You can now buy an ETF that represents any of the major market indexes or market sectors. This of course offers the individual investor more diversity then ever. No longer does the small investor have to “put all his eggs in one basket” he or she can now invest in more that 5000 different company through a single ETF.

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