Exchange-traded funds can be great for long-term investors, as long as you steer clear of these traps.
When exchange-traded funds were introduced in 1993, they were one of the greatest innovations for long-term investing in decades. A class of mutual funds that trade throughout the day like stocks, “Better than Mutual Funds” is how we described them in one headline.
Early on, ETFs mostly parroted broad benchmarks like the S&P 500 for rock-bottom fees and with excellent tax efficiency. The fanciest ones did nothing more exotic than break down the indexes into a handful of component parts–consumer staples, health care and financials, for example.
Times have changed. There are currently 850 ETFs vying for a piece of a $450 billion market. They still offer easy access to markets, but these days that access often seems to benefit Wall Street sharpies more than Main Street investors. In fact, many of the cardinal sins of financial excess seem to be part-and-parcel of the ETF business these days: extreme leverage, market manipulation and tax bills that can blindside unsuspecting investors, to name a few.
Full Story: http://www.forbes.com/2009/04/28/moneybuilder-etfs-leverage-personal-finance-etfs.html