Exchange Traded Funds (ETF's)

They're a great way to diversify for cheap. Someone can correct me if I'm wrong on this, but I think on average ETF's offer a lower expense ratios than a comparable mutual fund.

FWIW Schwab has just started offering commission free trades on all their broad market ETF's to brokerage clients. LINK

I bought it because someone explained it to me in that exact manner and I'm pretty sure that it doesn't trail the actual price very well.

It was a small investment, so it didn't hurt too bad, but it's a perfect example of why you should do your DD.

You can find a ton of articles and blog posts on UNG and USO, and why they're junk as an investment

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I use ETF's....... I have beaten the S&P 500 every quarter for four years now, with lower volatility.

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This can't be true. Rivers has already said he is not impressed with ETFs.....

BTW, I've used ETFs a few times and have had positive results (and one HUGE negative result....thanks, Colonel! ).

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Except for commodities ETF/fund offerings. There just aren't many out there to begin with and they usually have fairly hefty fees compared with other ETF's. However, the fees are usually in line with regular mutual funds, so I get some anyway b/c I want the exposure to that sector.

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That said, investors should pay careful attention to the tax implications of non-stock ETFs (metals in particular). Unless that tax treatment has changed, I don't think you can claim the long term cap gains rate for positions held over a year.

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Contango can also reduce returns significantly.

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I love that word!

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investors should pay careful attention to the tax implications of non-stock ETFs

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True, I forgot to comment on that. As a general rule, I keep the funds I expect to have high volatility in a Roth, and that includes the commodities.

This is where the individual (or a financial advisor, even) can actually help or hurt himself by paying attention to which account to put what investment in. In the long run this matters more than whether this stock is better than that stock.

And when I mean Whore For Government Stats I simply say WHOGAS. That is you ruskie.

Here is a blog re ETFs and gold tax obligations from MoneyMorning warning about people invested in ETFs receiving unexpected shocks...some from the funds, some from the IRS.

1) 'An investor who experienced a trading loss of $741 in the United States Oil Fund LP (NYSE: USO) – with no interest received – but a K-1 tax form reporting a taxable profit of $9,136 and interest of $210.'

2) 'Another who had actual trading profits in the United States Natural Gas Fund LP (NYSE: UNG) of $1,900, with no interest received, and a K-1 reporting taxable profits of $4,319 and $120 in interest.'

3) 'An investor who had an enviable trading profit of $4,335 in the PowerShares DB Agriculture (NYSE: DBA), without receiving any interest – activity that triggered a K-1 form that reported profits of $6,963 and interest of $207.'

4) 'Finally, an investor who notched trading profits of $337 and no interest in the PowerShares DB Commodity Index Tracking Fund (NYSE: DBC) triggered a K-1 listing profits of $3,406 and interest of $195.'

'Because the XYZ ETF does not pay income taxes itself, its profits are passed through to the actual owners – in this case, the shareholders, who must claim those profits as their own. If you own 50% of XYZ ETF, and XYZ files for a $100,000 profit in 2009, you’ll receive a K-1 for 50% of the net profits – or $50,000 – which you then will have to claim on your personal 2009 income-tax return.

By the way, conventional gold and metals stocks – gold producers are a good potential example of what we mean – are treated “normally,” so investors who have chosen to buy these more-traditional investment vehicles will escape these “unexpected” tax consequences.'

link to MoneyMorning story... LINK /