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ETFs are the place to be if you are serious about wealth building. They are an even better place for your long term investment dollars than Mutual Funds and here's why.

Mutual funds (managed portfolios) were created in order to overcome one of the major risks associated with the participation in the stock market and they have accomplished this task quite efficiently. Exchange Traded Funds (ETFs) are the very latest stage in the evolutionary progression of managed portfolios improving upon the concept that began with mutual funds. ETFs are index-based portfolios designed to mimic a specific index, which is at the heart of its advantage over the run-of-the-mill mutual fund.

For instance let me single out the granddaddy of ETF's the "Spider". The Spider, or SPDR, or Standard & Poors Depositary Receipts, ticker symbol SPY listed on the American Stock Exchange is designed to mimic the movements of the Standard & Poors 500 stock index. When you buy the Spider you buy it like any other listed stock. Let me point out that the S & P 500 index is the standard by which most stock mutual funds are judged.

Advantage: Over the years it has been shown that 80% of mutual funds under perform the S & P 500 Index. Ownership of the Spider insures that your investment will out perform 80% of its competition; and it will never, never ever, under perform the market. It is the market!

Advantage: Managed portfolios have management fees, the fee paid to the person hired to make sure that the portfolio performs as stated. The average annual fee for a large blend mutual fund is 1.13% while the management fee for the Spider is 0.08%. As an owner of the Spider you pocket 1.05% right up front each and every year.

Advantage: The Spider is purchased like any listed stock by using a limit order, open order, or stop order. You can, if you are wild enough, short sell the Spider. No can do with a mutual fund. A mutual fund's price is set on the closings each day and that's what you pay.

Advantage: Investing in the Spider is a no-brainer the only thing you need in conjunction with the Spider is time. Time is an absolute must! Five years is a bare minimum, ten years is favorable, and twenty years is optimal. At year-end 1986 the S & P 500 index stood at 242.17. At year-end 2006 the index finished at 1418.30. That comes to an average annual growth rate of just over 10.4%; or if $10,000 were invested in the Spider back then it would be worth a shade over $58, 500 at year-end 2006. All that was accomplished even though five of those 20 years were down years, one of which was down over 20%.

There are as many ETFs available as there are stars in the sky most of them not worth the mentioning. However, the ones that can be blended into your long-term portfolio using the Spider as the core investment would be the Diamond (DIA: Mimics the Dow Jones Industrials), S&P MidCap 400 (MDY), and the PowerShares QQQ (QQQQ: Mimics the NASDAQ-100).

Think ahead, buy the Spider now and keep buying it till those "Golden Years". You and your family are the only winners.

Learn more about this author, Richard Para.
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