The difference between ETFs and conventional mutual funds is that you can trade them like stocks. But of course you have to pay broker's fees. In my opinion, there is no advantage to them unless you do not want to pay penalties for frequent trading, which happens if you buy and sell conventional mutual finds more often then the rules allow.

There may be SOME ETFs that are not available as conventional mutual funds. But your first and most important decision should be: Where should I put this money that's coming due soon -- in stocks, bonds, money market funds or other "cash equivalent" funds? Answering that questions means closing considering your overall asset allocation -- what percent you have in stock, bonds and cash equivalents. You should make sure you have, say, 2-4 years spending money in the lowest risk category, cash equivalents, or maybe even more if you're planning a big expense like a move to another state or a trip around the world. Then the rest should be in stocks and bonds, how much in each category depends on your risk tolerance, which should depend on how much you can afford to lose in the short-to-medium term, say, 5 - 7 years, because that's how long it takes to recover from a big market downturn, like the one we had last year.

Even in retirement, you should have SOME money in stocks, because they are a good long-term hedge against inflation, while bonds, especially, long-term bonds can take a beating in periods of high inflation. Right now, inflation is not a worry, but it could happen all of a sudden. To prepare for it, putting some money in a mutual fund of TIPS, inflation protected treasuries is a good idea.

If you've heard this story before and it makes sense to you, you probably know what you need to do. But if it leaves you confused, maybe you should consult a FEE-ONLY certified financial planner.

We invest heavily in a variety of ETFs. We like ETFs because the fees tend to be a lot lower than mutual funds and you're not locked into a fund. If you do self directed investing, you also often don't have to pay a broker fee to buy ETFs.

http://etfdb.com/2009/five-advantages-of-etfs-vs-mutual-funds/ does a nice comparison between ETFs and MFs.

http://finviz.com/screener.ashx?v=111&f=ind_exchangetradedfund will allow you to see how many different types of ETFs available for investment.

Our broker has replied to my request for info with these:

Pimco Unhedged Foreign Bond Fund

PFRCX and FXECX -- both ETF funds, but the former pays a 2% dividend.

I'm looking for a substitute for the 'safe money' we have coming due out of CD's. (Farewell, 4.6% APY!) We have other investments in stock and bond funds and a few municipals that are nearing maturity. I am concerned about the US dollar.

I was a little leary of the ETF's because they are a relatively new thing; there are a zillion of them; they remind me of the bundled mortgages that put us into Recession when that all fell apart.

Forbes has a very good article on their website of the pros and cons on ETFs. You might want to check it out, I've attached a link below.

Here is a link that might be useful: Forbes.com on ETF basics

PIMCO has much better dividend funds than the one your broker is recommending.

Here is a link that might be useful: Some ETFs that pay a 4% dividend or better

I think ETFs are okay if you want to invest a SMALL amount in a particular industry, say, green energy or biotech, and you don't feel comfortable sorting out the individual companies in that sector. Other than that, I cannot see any advantage -- conventional mutual funds, especially broadly diversified index funds are the way to go, because they automatically re-invest dividends and cap gains for no fee,and their expenses are rock bottom. ETFs pay distributions in cash -- not a particularly good feature.

Where to put money these days is especailly tricky. The market is overextended and is likely to get volatile in the next few months when the bad news about the next wave of the housing crisis comes: Over the next 12 to 24 months a very large number of conventional (not subprime) ARMs are going to start charging a lot more in interest, according to the contracted obligations scheduled when those mortgages were written. That means a HUGE increase in monthly costs, which will trigger a new avalanche of foreclosures for people who have lost their jobs or are underemployed. There will be a lot of turmoil in the markets and the risk of a double dip recession is high.

Where to put money in this environment? Get ready for the next big thing, inflation, and invest in TIPS, preferably in tax deferred accounts. In taxable accounts, a small stake in an index mutual fund of short-term high quality munis is appropriate.

Thank you all! I can see that I know too little about this to plan wisely. You are all *wonderful* -- kind and helpful, but I do need to pay for some advice. Jkom (or anyone) please review again the advice about choosing a certified planner.

haus_proud -- We have some TIPS already. I agree that the next wave of housing foreclosures, along with an unmproving job market, are going to have us continuing to live in those 'interesting times' refered to in the curse. A fnancial expert on GMA recently talked about the percentage of homeowners in the USA. It was 64% for years, then skyrocketed into the 70-something percentage. Is now back to 68% -- which leaves another 4% just to return to 'normal'. She also repeated what we all should have learned growing up, "Live within your means." CC interest and fees are going *way* up.

haus_proud says "ETFs pay distributions in cash -- not a particularly good feature." This is true, but you must buy an ETF through a brokerage, and many of them offer the service of reinvesting dividends for no extra charge.

On the other hand, there are two hidden costs to ETFs that I have not seen mentioned so far. They're usually not particularly large, but they do deserve attention.

One is the bid-ask spread. Because ETFs are purchased on the open market, the price for which people are generally willing to sell ETF shares is slightly lower than the price that people are willing to pay for them. Which means that when you buy shares in an ETF and then sell them at the same nominal price, you will nevertheless lose a small amount.

The second is that the price of an ETF can sometimes vary from the price of the underlying securities (i.e. the Net Asset Value, or NAV). There is a pragmatic limit on how much this variation can be, because the ETF issuer is normally willing to buy or sell ETF shares at a price based on the underlying securities. Nevertheless, there usually is a spread.

For example, the Vanguard Emerging Markets ETF (ticker symbol VWO) has sold for a price that is more than 1% above the NAV on about 10% of trading days, and for a price that is more than 1% less than the NAV on about 3.3% of trading days. So if you buy when the price is greater than the NAV and sell when it's less than the NAV, you might lose money on those transactions too. If you buy a mutual fund, you always get it at the NAV.

Be especially careful with 'leveraged ETFs', a special class of ETFs (google the term for more info). They are really for pro traders, and not for the average 'buy and hold' investor. These are highly volatile trading instruments that aren't recommended for holding more than 24 hrs at at time.