Some people enjoy the thrill of “playing” the stock market, but many of us don’t have the wealth to be able to sink tens of thousands of dollars into a few stocks.  Instead, we satisfy ourselves with looking at the monthly reports from our mutual funds.  But what if you could have the best of both worlds:  the security of the diversification inherent in a good mutual fund AND the joy of knowing that we can buy or sell our mutual fund shares on a competitive open market?

ETFs are electronically traded funds.  They are mutual funds that individual investors can buy or sell on the market through most brokerage firms.  With ETFs you won’t get the thrill of the wild swings that owning penny stocks would give you, but that’s not really something that you would want with your nest egg.  Still they do rise and fall a bit every day that the markets are open.

Most ETFs focus on a market sector.  Some might concentrate on technology stocks, while others invest in stocks somehow related to the construction sector, etc.  If you own an ETF specializing in the widget sector, for example, you can sell your shares if you believe that part of the economy is going to decline.  Then you can take that money and reinvest it into an ETF that holds stocks in the woodget sector, if you believe that sector is in a growth cycle.  When you are right in your decisions, you get a feeling akin to that of winning the office March Madness pool.  When you’re wrong, it’s like knowing you have to buy another lawn mower two days after the old mower went out of warranty.

Neither your gains nor your losses are going to be very great, though.  Most ETFs just don’t fluctuate enough in the short term for you to lose any sleep.

Remember, though, you will have to pay a brokerage fee for each transaction (buy order or sell order).  But with discount brokers on the Internet, each transaction could be as little as $10 (give or take) no matter how many shares you’re trading at one time.  That’s not much to have to pay for the fun you’ll have.  In fact it’s probably comparable to what you put into that office pool!

To learn more about ETFs, you can get lots of free information at the web sites of the major online brokerage firms.  If you see any links (even ads) to them while you’re on the Internet, take a peek at what they have to teach you.

Greg Porter is a university professor, Internet entrepreneur and owner of gSport Enterprises LLC.  Among his web enterprises are www.InformationWarehouse.Info and www.web-hotdeal.com.

Copyright 2006