Most young people hold the opinion that as far investment vehicles are concerned, ETFs possess many advantages over mutal funds. For most educated, relatively well-to-do young people this preference for ETFs over mutual funds is warrented. Readers will generally understand the reasons that ETFs are a better choice. If you are reading this and dont understand why ETFs are better, you should just go to www.morningstar.com and pick a highly ranked, broad based, balanced mutual fund (balanced means the fund will contain both stocks and bonds. You really only need one balanced fund with a good manager, and Morningstar does the best job at figuring this out for you). Now, if you understand that ETFs are your best method for investing, here are some important concepts you must incorporate into your investing methodology.

•Market timing (which is just tilting at windmils for most investors) is not the same thing as waiting for value to emerge before buying (which is prudent and responsible investing).

•Almost half of S&P 500 earnings come from outside America so don’t fixate on domestic vs. foriegn exposure- the SPY will get you a pretty good mix of exposure to US and foriegn earnings.

•Bond ETFs do not possess the same desirable characteristics as stock ETFs (only US and Japanese government bond ETFs have the same qualities as stock ETFs that make them desirable investment vehicles; corporate bond ETFs are a very different story).

•Investing for the long term means ignoring short term fluctuations in both directions- yes, it is OK to excercise patience if the market is too richly priced based on its historical price-to-earnings ratio.

Avoiding the misconceptions above will improve your understanding of how to make ETFs a great investment vehicle for your portfolio.