There are a few situations where ETFS come in handy:

• Like we said, if you have a chunk of money you’d like to invest – say if you’re rolling money over from an old 401(k) to an IRA -- ETFs could be a smart choice.

But if you want to regularly build on that investment a bit each month, stick with mutual funds that you’re able to buy without paying brokerage fees. Paying a commission will eat into your returns. And there are at least a handful of good mutual funds to choose from that track the big, popular stock indexes.

• If you don’t have the $2,000 minimum investment required by some mutual funds, you can use ETFs as an alternative. A portfolio can be easily assembled with as few as three ETFs, such as: the Vanguard Total Stock Market ETF, which covers the entire U.S. stock market; iShares MSCI EAFE, which tracks the international markets, and the iShares Lehman Aggregate Bond ETF. Our asset allocation calculator will give you an idea of what types of investments you should have.

• ETFs can perform the same acrobatics that stocks can. You can buy option contracts on many ETFs, and they can be shorted or bought on margin.

We don’t recommend that you do any of these things as a long-term investor – you should really be a professional acrobat before you get involved with any of these high-wire acts.

Want to Know More?

• What's an ETF?
• Getting a Great Deal on an ETF
• Grilling Guide: Questions to Ask When Shopping For an ETF