You’ve heard about exchange traded funds on the radio. You’ve seen iShares advertisements on the Internet as well as on television. You’ve heard bits and pieces about how they work, but you still don’t have a grasp on exactly what they are. You need to understand them before you risk any money.

You plan to incorporate exchange traded mutual funds into your portfolio. However, you need to get more in-depth information. Quickly get exchange traded funds education and training by doing the following:

1. Take courses on exchange traded funds.

2. Learn about the benefits of trading ETFs by watching webcasts.

3. Listen to podcasts to find out information on ETFs.

Action Steps
The best contacts and resources to help you get it done

Learn about exchange traded funds by taking courses

One of the best ways to get solid exchange traded funds education and training is by taking courses. Although courses will focus on the fundamentals of exchange traded funds, you will also learn about their history and how they continue to evolve. For example, companies are still developing ETFs to track other commodities and indices. You'll also learn why investors choose ETFs as alternatives to mutual funds.

I recommend: New York Institute of Finance offers courses on exchange traded funds. The instructor will show you how to use a list of exchange traded funds to track their performances. Morningstar also provides a course on ETFs. This online course educates you on what ETFs are and how they work.

Use webcasts to understand the benefits of trading ETFs

Now it's time to learn how to integrate an exchange traded fund into your investment portfolio. Let webcasts educate you on how to perform ETF analysis. You will also understand how to compare exchange traded funds so that you can evaluate their performances.

I recommend: InvestmentNews provides a webcast that shows you how to add ETFs into your investment portfolio. You will also learn how to compare and assess these funds. BMO InvestorLine also provides webcasts on exchange traded funds. If you need to brush up on your knowledge of ETFs, BMO InvestorLine has a podcast that focuses on the basics.

Educate yourself on exchange traded mutual funds through podcasts

You now have a good grasp on exchange traded funds, but your education is an ongoing process. It's important you keep abreast of what's happening in this market. This is why you must add podcasts into your arsenal. Listening to podcasts enables you to find out how well exchange traded funds are performing.

I recommend: Bloomberg has several podcasts on ETFs. Topics include diversification and long-term strategies. iShares also provides webcasts on ETFs. This ETF company has a podcast that discusses the tax benefits and low costs of exchange traded funds.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  To get more exchange traded funds education and training, make sure you take advantage of your brokerage's educational resources on ETFs. Many times they provide comprehensive information on these investment securities.

Exchange traded funds (or ETFs) are investment hybrid vehicles that trade like stocks but act like mutual funds. When you buy into an ETF, you buy shares of a basket of stocks held by the ETF company, with the share price determined by the ups and downs of the entire basket. Just like a stock, you can buy and sell shares in exchange traded funds any time, in addition to fancy maneuvers like short selling or options trading.

The ETF is based on the sad fact (for finance majors) that the return on a fixed, broad basket of stocks will likely beat the performance of a money manager over the long term. It’s the same idea behind the hugely popular mutual funds called index funds. So why would you choose exchange traded funds over index funds? Some decision points:

1. If you’re an active trader who jumps in and out of positions to take advantage of money-making opportunities, ETFs are a good bet. Mutual fund fees and rules discourage short-term trading.

2. If you’re a passive investor, making regular contributions to a retirement pot, index funds are a good bet. Unlike ETFs, you don’t pay a commission on a trade to buy more shares

3. In both exchange traded funds and index funds, you pay an annual fee to the investment company, but ETF fees are typically lower.

Action Steps
The best contacts and resources to help you get it done

Scope out what's available from the biggest ETF seller

Barclays pioneered ETFs under the brand name iShares. Its website is a good place to see a range of ETF offerings and learn how they work.

I recommend: Visit the iShares site for an intro to ETFs or to search their list of exchange traded funds or track ETF performance.

Find the right ETFs

You can buy a gold ETF, silver ETF, oil ETF, natural gas ETF, China ETF, European drug company ETF, luxury goods makers ETF, in addition to broad based vehicles like S&P 500 ETFs that track 500 big US companies.

I recommend: Sort through the huge variety with an online ETF screener from Morningstar, Yahoo! Finance, Investors Business Daily or your favorite financial site or online broker.

Check exchange traded funds fees - and compare to index funds

Exchange traded fund fees (or 'expense ratios') should be cheap since they aren't paying big trading commission bills or big money manager salaries. ETF fees can go down to 0.15% or $15 for every $10,000 invested. But some ETFs charge far more than that, so take a close look. And the index funds are fighting back: Fidelity's Spartan 500 Index Fund charges 0.10%.

I recommend: Compare exchange traded fund fees with the handy screener at XTF Global Asset Management. Keep an eye on the index funds at Fidelity and Vanguard to see how low they go (and check their own list of exchange traded funds while you’re there).

Start trading ETFs

You can only buy ETFs through stockbrokers, so you'll need an account with a brokerage firm to get started. Online brokerages make it easy to find ETF trading symbols, see current performance and trade. Bid and ask prices on ETFs can vary by a few dollars so select 'limit order' when you buy and sell to make sure you get the price you expect.

I recommend: With their low minimum account balances and trades costing a few dollars, online brokerages Scottrade and E*Trade are great places to try out exchange traded funds if you’re new to the game.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  ETFs may make good sense for your taxes. You don't owe capital gains till you sell shares of an ETF while mutual funds periodically stick you with capital gains charges for accumulated sales of stocks.
• •  If you're used to investing through mutual funds, be aware that ETF funds don't automatically reinvest dividends, as do mutual funds. Ask your brokerage to reinvest without trading fees.
• •  Sorry, 401 (k) investors, those workplace retirement savings vehicles aren't likely to offer exchange traded funds because they typically don't allow trading.

Exchange traded funds are investment securities that can be traded as stocks. Yet, they behave like mutual funds in that they invest in a pool of securities. Exchange traded funds or ETFs closely follow an index, such as MSCI EAFE or S&P 500. These investment securities specialize in a sector. For example, if you want to invest in gold, purchase shares in an exchange traded fund that invests in gold companies. Investors like exchanged traded funds because they have lower operating costs and offer tax advantages and diversification.

Action Steps
The best contacts and resources to help you get it done

Exchange traded funds

Exchange traded funds comprise a collection of securities based on individual sectors. Investors and traders are attracted to these funds because they don't cost as much to purchase as they do with stocks. Second, they like exchange traded funds because they can help save on taxes. You will find exchange traded funds that specialize in various sectors, such as real estate, international, or bonds.

I recommend: Visit Yahoo! Finance’s website to get comprehensive information on exchange traded funds.

Shares

Purchasing shares in an exchange traded fund means owning a part of the collection of the securities that make up this fund. In other words, you own a part of the fund. As a result, you will profit if the fund earns money. If the fund loses money, you will as well.

I recommend: Read Whiskey and Gunpowder to understand how shares work in exchange traded funds.

Trading

Trading involves buying and selling shares in exchange traded funds. You will have to go through a broker to execute these transactions.

I recommend: ETF Connect has an FAQs section that discusses trading in funds selling at a discount.

Commissions

Each time when you purchase or sell shares in exchange traded funds, you will have to pay a commission. A commission is a fee that the the broker charges you for executing a transaction.

I recommend: Path to Investing explains how a brokerage commission works when it comes to exchange traded funds.

iShares

iShares is regarded as one of the largest issuers of exchange traded funds for both global and domestic markets. Each fund closely follows either a stock or bond market index. You will find exchange traded funds, such as the Dow Jones Index or Barclays Aggregate Bond Fund.

I recommend: Go to iShares to get in-depth information on all of the exchange traded funds that it provides.

SPDR

SPDR is also another large and popular issuer of exchange traded funds. State Street Global Advisors manages these funds. SPDR is named after Standard & Poor's depository receipt, and tracks the Standard & Poor's 500 Index (S&P 500).

I recommend: Select Sector SPDR provides a comprehensive overview of SPDR exchange traded funds.