The One Minute Millionaire Diamond Mine
 The Wealth Factor
 Stock Market Strategies
 By Dr. Stephen Cooper
     
 
 

What’s my Line?

I am made up of a group of stocks but I am not a mutual fund. What am I?

I can be traded just like a stock but I am not a stock. What am I?

I have many of the advantages of both stocks and mutual funds but I am neither. What am I?

Nine years ago I was born as a spider. What am I?

I now have over 100 brothers and sisters. What am I?

Do you give up yet?

Long ago when we were kids (if you are old enough), there was a wonderful television program called, “What’s My Line?” The gist of this early comedy show was that various mystery guests would appear each week. Contestants would have the opportunity to ask the mystery guests questions to try to determine which one was the “real” mystery guest and who the fakes were. This all centered on an unusual occupation or activity that the mystery guest was involved with.

So, who is our mystery guest?

Meet the ETF

An Exchange Traded Fund, commonly referred to as an ETF, is an index fund similar to some mutual funds with a primary difference. Unlike mutual funds, which have only one trading price per day, the ETF can be traded just like a stock. It is assigned a bid and ask price and can be bought or sold intraday. This means that investors can buy or sell shares in the collective performance of an entire stock or bond portfolio as a single security. Exchange Traded Funds add the flexibility, ease and liquidity of stock trading to the benefits of traditional index fund investing.

In recent years, many investors have employed the advantages of ETFs in both trading and long-term investing accounts. Here are several of the important benefits of ETFs:

Tax Efficiency
Because of the low turnover of holdings, ETF’s like traditional index funds, generate less capital gains tax consequence.

Lower Expenses
Another attractive aspect to ETF’s is that they carry rather small expense ratios as compared with standard mutual funds. Both mutual funds and ETF’s charge a stated percentage of your principle on an annual basis for operating costs and profit.

Diversification
In contrast to trading single stocks, ETF’s provide significant diversification because like a mutual fund an ETF is made up of a basket of stocks. The ETF basket is smaller and more flexible than the typical mutual fund. In terms of volatility, an ETF falls somewhere between individual stocks and mutual funds in a general sense.

How do I Find ETFs?

Like stocks and mutual funds, ETFs are identified by ticker symbols. Here is a partial list:

  • IBB, iShares NASDAQ Biotechnology
  • IJH, iShares S&P MidCap 400
  • QQQ, NASDAQ-100 Index Tracking Stock
  • MDY, MidCap SPDRS

For a complete list of Exchange Traded Funds go to www.AMEX.com.

Yours in better trading!

Dr. Stephen Cooper

   
 

As a trader, teacher, author and lecturer Dr. Stephen Cooper has guided thousands of students to greater success in trading stocks and options. His site, www.OnlineOption.com. is an excellent resource for traders of all levels. A free newsletter is available by going to OnlineOption.com. Over the past five years Dr. Cooper has conducted live teleconference courses covering personal financial basics, stock screening, technical analysis and practical trading. He has authored The Online Option Trader, Windows to Wealth, and The Truth About Money. With over 18 years of experience Dr. Cooper is recognized for his successful techniques, his clear and systematic teaching style, and technical expertise.