Not investing in the stock market means you’re leaving a lot of potential money on the table. The prudent investor, even in tumultuous times like we’re currently experiencing, is nearly fully invested all the time. As Jim Cramer of Mad Money fame says, “There’s always a bull market somewhere.” What he means by that is that there is always a market, an industry, country, or region that is outperforming the market in total.

One of the best ways to invest in sectors, countries, and regions is through Exchange Traded Funds, better known as ETFs. They’re especially useful for lump-sum purchases, as you pay one low commission per trade. There are two things you must do in order to purchase an ETF: You’ll need to decide which one(s) to buy and once you know what you want to buy, you’ll need to execute that buy.

This article will focus on the execution of the buy order. Selling, for the most part, is the opposite, just like stocks.

ETFs act like mutual funds but are bought and sold like stocks. Like mutual funds, an ETF is a collection of stocks bought and sold according to changes in the underlying index it is replicating. ETFs are passively-managed just like index mutual funds; only when an index changes does the fund manager buy or sell securities. Like stocks, buying and selling an ETF incurs a commission. You can also short an ETF as well as buy them on margin (unlike mutual funds).

In essence, ETFs offer the benefits of both mutual funds (low fees, instant diversification) and stocks (low commissions, instant liquidity).

The first thing you’ll need to do is open an account at a brokerage. I suggest that you use an online, discount broker like eTrade, Zecco, or TradeKing. These offer very low commissions (around $7-20 per trade), fast execution, and several flavors of limit orders.

Once you’ve established an account, you’ll need to fund it. There are a multitude of ways of doing this; I’ll mention a few.

• Mail the brokerage a check
• Wire money from your bank to the brokerage
• Transfer money from your bank to the brokerage via an online transaction

I prefer the last method, as it incurs zero cost and gives a good compromise between the first and second options in terms of getting your money to the brokerage in a reasonable time (usually 2-4 business days).

Once funded, you can decide what kind of order to place. Generally, on the buy side, you’ll want to execute a market order, which means that you will purchase the ETF at the price it’s at when you place the order. It’s akin to going to the store and buying milk: You pay the current price.

A limit order, on the other hand, is like waiting for a sale. You tell the brokerage that you will make the buy only at a certain price. In a bull market, placing a limit order sometimes effectively takes you out of the run-up because the price never declines until many months later, on the way down.

However, placing a limit buy order does ensure that you pay what you think it’s worth. It’s just that your estimate of worth may differ from the market for a long, long time.

After you’ve decided whether to place a market or limit order, you now simply must place the order. Doing so online is a snap. Input the particulars of your order: How many shares, what kind of order, etc. Most online brokers ensure that you review your order before you place the order. Review the order carefully, ensuring that all of your specific order instructions have been made, and then

PLACE THE ORDER

Congratulations, you’ve now invested in one of the hottest securities going: Exchange Traded Funds!