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By Jason Stipp | 08-03-2010 05:06 PM

Three Beneficial Investing Innovations

These newer investment types and services have brought convenience, discipline, and lower costs to investors.

Jason Stipp: I'm Jason Stipp for Morningstar. Last week on Simple Solutions, Morningstar director of personal finance Christine Benz talked about some investment innovations that she might shy away from. This week, she's going to talk about some innovations that she finds more attractive.

Christine, thanks for joining me.

Christine Benz: Jason, nice to be here.

Stipp: So, I think sometimes we are skeptical of some of the newer products out there on the market, maybe some of the products that haven't proven themselves, but not all innovations are bad, in fact some of them have had some positive impact on the marketplace of investments. Can you tell us a little bit about some of the ones you've been looking at recently?

Benz: Jason, it's funny. There was commenter below that video that we taped last week and he basically said, "so are there any innovations over the past 30 years that you like?" And yes, there are. So, the key one I would point to Jason is exchange-traded funds.

And so ETFs offer, obviously, very low costs, oftentimes, good tax efficiency, and also superior tax efficiency characteristics on a going forward basis. And also for the person who is inclined to maybe buy an individual stock without doing his or her homework, maybe they want to be in a given sector, the ETF represents to me a much safer alternative than doing that. So, ETFs have done a lot of good things on a number of fronts.

And one of the other key things I would point to is that even for people who aren't inclined to invest in ETFs, ETFs have helped drive down costs throughout the industry. So, as we've seen these massive flows into ETFs, I think that's gotten active fund management providers to sit up and take notice and think hard about cutting their costs as well.

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