While Wall Street still won’t admit it, the buy-and-hold stock investing era is OVER as a viable way to make money in the long run. Mutual Funds have traditionally been sold as “buy and hold” investment at so the mutual fund company can keep managing these assets. One of the best strategies over the last 12-13 years have been more active swing type strategies that take advantage of both the up swings and down swings in the market by both buying in the up trends and selling short in the down trends.

One of the best ways to get started actively swing trading, is to invest in Exchange Traded Funds (ETFs). Within the ETF world there is a huge range of choices, I often get the questions: “Where do I start?” and “Which ETFs are right for me?”

There is such a broad range of ETFs that investors new to them have a hard time understanding where to begin. My suggestion is to always start with things you are familiar with and then branch out to other things as your portfolio warrants. So the best way to get started is to become aware of what is available. Generally, I separate the ETF market into three broad categories:

Equity Index ETFs
Bond ETFs
Commodity ETFs

Many buy and hold investors have invested for decades in mutual funds. Let’s discuss why ETFs are better than mutual funds for more active trading strategies. There are several advantages Exchange Traded Funds have over Mutual Funds for equity investors. The main difference is that ETFs trade like individual exchange traded stocks, not Mutual Funds.

Other Differences between ETFs and Mutual Funds:

1. When an investor buys shares in a mutual fund, he or she pays the end of day NAV (net asset value). Since ETFs are traded on the exchange, they act just like any individual stock, and can be purchased any time at the current price during the market hours.
2. When an investor purchases shares in ETFs, unlike mutual funds, they may use the same kind of entry orders used when purchasing stocks like pending limit orders, pending stop entry orders, stop loss orders, and take profit orders just like stock trading. This ability to trade an ETF just like a stock is a great advantage for more active swing traders allowing them to apply many different trading strategies to their ETF positions, something that just can’t be done to mutual funds.
3. With exchange traded funds an investor may also buy long or sell short any number of shares that he or she would like too, even down to one share if desired. This is a real advantage for the investor with a small portfolio. Many mutual funds have much higher minimum purchasing requirements.
4. For investors with experience trading options, you can trade puts and calls on many ETFs just like any other optionable stock.
5. The management fees are generally less in the ETF world, as they just need to pick the basket of shares that follow their sector or specialty, and are much less likely to have highly paid fund managers (expensive stock picking gurus.)

In summary, a big part to success in an investing strategy going forward will be replacing a buy and hold investments in mutual funds or individual stocks, for more active swing trading strategies starting with several diversified ETFs.