Exchange Traded Funds or ETFs are "first cousins" to index funds, though a key difference in the retail market is they trade like a stock with price fluctuations throughout the trading day.

Lately, ETFs are being brought to the attention of 401(k) plan sponsors by some fee-based financial advisers who believe that adding ETFs to a plan's investment lineup can help create enhanced account values for participants over time. ETFs' primary appeal is their low-cost and transparent nature. However, the real benefit of including ETFs in any portfolio, according to some advisers, is the ability to build more sophisticated and better diversified asset allocation models. The goal with this approach is always the pursuit of more consistent and stable performance over time.

While ETFs can track specific broad sectors like an index fund, they tend to offer a broader range of options and can more readily focus in on very specific sub-asset classes, sectors or business strategies. While still largely unfamiliar to most investors, it is important to understand that ETFs are most effective when used within a well thought-out and diversified asset allocation strategy complete with regular rebalancing. ETFs can lower costs and improve portfolio transparency giving investors better insight into their retirement account holdings.

-- Jeff Acheson,
Schneider Downs Wealth Management Advisors,
jacheson@schneiderdowns.com.

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