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Are Exchange Traded Funds (ETF) the Way of the Future?

Make no mistake about it; this week has been tough for even the most savvy of investors. Many people have lost a lot of money in stocks that were always known as “Sure Things” and society has to wonder, is there any such thing as a “sure thing” anymore? One direction investors may look toward would be putting their money into Extended Trade Futures.

Exchange Traded Funds aka ETFs, may be the wave of the future. Many experts have stopped buying mutual funds and started buying ETF’s for a variety of reasons.

One of the key factors given for the newfound success of ETFs is that these funds offer “ultra” funds. “Ultra” funds are leveraged funds which can move as much as double the underlying index and so offer aggressive investors a way to leverage their investments even within qualified accounts.

While ETF’s appeal to the risk-taker, the funds also have dynamics that the conservative investor would prefer. For example, ETFs have lower expenses and provide greater tax savings when compared to mutual funds. An average actively managed mutual fund expense ratio is approximately 1.5% while an index is 0.19%, but a typical ETF expense ratio is only 0.13%.

ETF’s offer more tax efficiency than mutual funds because the investor will not get the capital gains and income hits they normally get from a mutual fund. ETFs do not distribute gains and a dividend unless you’re an owner on the date payment is made, which also makes ETF’s attractive to investors.

Statistics don’t lie and the facts indicate that ETFs have jumped from 3% of the United States market in 2002 to 7% at the end of 2007. ETFs hold over $608 billion compared to index mutual funds with over $750 billion, and the Financial Research Corporation projects ETFs will grow at more than 20% per year and total assets will top $1.5 trillion by 2012.

If the current trend continues, ETF’s will be the next big thing and as one old-time stock broker advised his client way back when, “The trend is your friend.”

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