Mutual funds have long been considered one of the best easy-to-invest instruments available that minimize risk and maximize returns. In the 1980s and 1990s, U.S. financial markets made trillions of dollars under the mutual fund structure. Funds, especially more actively managed ones, were expected to outperform the market index over the long term. However, with expense ratios ranging from 1.5% to 2.5%, the funds underperformed the index by the amount of their expense ratio. What is an expense ratio and how does it reduce performance? Investors use the expense ratio as the main parameter to decide on investment products. The expense ratio in a mutual fund is made up of the investment management fee, a 12b-1 fee, also known as the distribution cost, and other operating expenses. A shareholder pays the commission on a daily basis through an automatic reduction in the price of a fund. If you invested in an exotic mutual fund with a 2.5% expense ratio, after 30 years you would only have $87,550 and pay a whopping $86,944 (nearly 50%) in expenses. Let's look at another example. If you invested in a fund with a 0.5% expense ratio (typical for index funds), after 30 years you would have $152,203 and pay a total of $22,291 (or 12.8%) in expenses. So high expense ratios can really hurt your investment performance. Exchange Traded Funds or ETFs, as they are known, far eclipse mutual funds for their biggest advantage, among others, low expense ratios. The expense ratio for a mutual fund is over 1.5%, while for an index fund it is 0.19%, but a typical ETF expense ratio is only 0.13%. This means you could simply buy the index with a low-cost ETF and outperform almost any mutual fund in the long term at least... middle of the paper... nothing short of spectacular. Invented in 1993, they started with a national fund and have since grown to more than 1,100 ETFs that track domestic and global indices, sectors and even alternative investments such as water, timber, clean energy and solar. And there are more coming online every day. The new funds offer long exposure to areas such as China, emerging markets, the Wilshire Total Market Index, and leveraged short exposure to the Russell 3000, DJ Wilshire Total Market and a number of country-specific funds such as Brazil, Mexico, South Korea and region-specific funds such as Latin America, Europe and the Pacific. Given the flexibility, different options, tax and expense benefits, ETFs are an attractive option that every investor should consider for their portfolio, particularly in these challenging times and when 401k's and IRA's are more important than ever since our financial future.