How to buy ETFs Exchange-traded funds have gone mainstream as individual investors and financial advisers alike have embraced the flexibility of low-cost, tax-efficient portfolios. Yet ETFs are not perfect tools that magically make investment risk disappear. Investors must use these securities wisely and avoid common pitfalls if they want to meet their goals. ETFs, which are baskets of securities that trade on exchanges like stocks, track most major investment classes, such as U.S. and international stocks, precious metals, commodities, bonds and currencies. Typically ETFs are cheaper and more tax-friendly than regular mutual funds. In addition, ETFs give shareholders the ability to trade throughout the day, while funds are priced only once daily, at the market close. If you're considering ETFs for your portfolio, heed these tips: • Cheap can be costly: While many investors purchase mutual funds directly from a fund company or through an investment adviser, ETFs are bought and sold through a broker. Buying and selling can swamp ETFs' cost benefits quickly. • The temptation to trade: With ETFs, the temptation to trade, mistime the market, may be great because they can be bought and sold at any time in the trading day. • You may not be as diversified as you think: Since almost all ETFs follow indexes, they are seen as efficient ways to get exposure to broad swaths of the market. Yet some sector ETFs and single-country funds only hold a handful of stocks. • Rearview mirror investing: Financial advisers caution not to buy what has gone up most, a common investor error that all but guarantees buying high and selling low.