Exchange-traded funds (ETFs) make great tools for building a a reasonably diversified portfolio of U.S. stocks on the cheap, particularly for those making lump sum investments. However, with 102 domestic ETFs trading at last count, some investors may feel overwhelmed by all the options. So let's sort things out a little by grouping the funds for each major domestic asset class. But before we do that, let's see what the typical mutual fund charges in expenses for each category.

In most cases, there are several ETF options covering an asset class. A good rule to keep in mind is that for the most part an ETF is only as good as the index it tracks. Each index provider has its own rules for classifying size and style, and it's a good idea to understand how the index works first. The major index providers explain the methodology behind their benchmarks on their websites.

Finally, for those who want to keep it really simple and hold fewer funds, here's a list of ETFs tied to broad indexes that cover large slices of the market. Barclays Global Investors also offers iShares based on style indexes for the total market (Russell 3000), as shown below.

Well, there it is: a Cliff's Notes of ETFs for the major domestic stock categories in our style-box dominated world. Just remember, this list doesn't include stock sector funds, bond funds, international funds, REIT funds, and other investment categories that could be included in a diversified portfolio. For most categories, there are ETFs available or there will be soon. To check out the full range of existing exchange-traded funds, take advantage of our ETF Screener.

1/14/2002

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