Investing: a bargain alternative to mutuals.(exchange-traded funds)

Few financial products have created as big a stir in recent years as exchange traded funds, or ETFs. Much like the more familiar index mutual funds, ETFs are portfolios of stocks or bonds that track particular market indexes.

Unlike mutual funds, however, ETFs trade like stocks. So, for example, you can buy or sell them during the day at that moment's price, rather than wait for the unpredictable end-of-day price on a mutual fund. You can also take advantage of sophisticated trading techniques, such as issuing stop-loss orders that instruct your brokerage firm to sell shares automatically when prices fall below a certain level.

ETFs have two principal selling points:

* They are often cheaper to operate than a comparable mutual fund and, as a result, tend to pass along lower expenses to their investors.

For example, the average index mutual fund that tracks the S&P 500 charges its shareholders about 0.4 percent in annual expenses, while similar ETFs have expenses of 0.1 percent or less.

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* ETFs also tend to be more tax-efficient than traditional mutual funds. The latter are required by law to make capital-gains distributions to their shareholders each year, based on the profits they've reaped in selling securities.