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Hot Stuff The mercury's rising on exchange-traded funds.

By Dian Vujovich

Opinions expressed by Entrepreneur contributors are their own.

Exchange-traded funds, or ETFs, are hot. Around for almost 15years, these index-like investments have finally caught on likewildfire with investors, and for good reason: They trade likestocks, are inexpensive to own and offer plenty of choicesrequiring no long-term investment commitment.

Each ETF represents a basket of securities: Some are broad-basedand index-related, like the popular Nasdaq-100 Index ETF; othersare country-, industry- or sector-specific, such as Vanguard'sEnergy VIPERS. ETFs may be used as core investment holdings; forportfolio diversification; for hedging; or for cash management,rebalancing or tax-loss strategies. Plus, annual expenses are onlyabout 25 basis points a year (or 0.25 percent).

Before investing, do some research, then ask yourself: Do I wantETFs to be my core investments, or to act like accessories to fillin various sector needs? In case you're wondering, most prosthink ETFs are a great way to diversify their clients' assetsacross various asset classes. You can start your research atwww.amex.com,www.ishares.com, www.streettracks.com and www.vanguard.com.

ETFs can jazz up your portfolio, but they aren't risk-free.Also, keep in mind that market performance runs in cycles. Be sureto consult your financial advisor to find out if and when ETFs areright for you.

Dian Vujovich is an author, syndicatedcolumnist and publisher of fund-investing site www.fundfreebies.com.

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