As many previous articles on this site have detailed, there is nothing better for long term investors than blue chip stocks that pay dividends such as Coca-Cola (NYSE: KO), ExxonMobil (NYSE: XOM), and Wal-Mart (NYSE: WMT).  That is why legendary investor Warren Buffett is a major shareholder of all three.  But there are also uses for exchange traded funds (ETFs) that investors should deploy profitably.

ETFs are investment funds traded on exchanges like stocks that hold a collection of assets.

There are many similarities to stocks.  ETFs are traded on exchanges.  There is immediate liquidity and pricing data.  ETFs cover virtually all asset classes. These range from commodity areas such as gold to stocks that pay dividends.

A major advantage that ETFs have over stocks is that professionals due the research that results in the buying and selling.  No individual investor can replicate the resources that are available to an ETF.  That allows for those buying ETFs to benefit from professional management.

There is also a broader asset base in ETFs.  In an ETF is a wide range of holdings.  It would be prohibitively expensive for an individual investor to attempt to buy all of the securities held in an ETF.  Due to the size of an ETF, it can get discounts on execution too, lowering costs.

ETFs are not as volatile as individual publicly traded companies.  That results from the broad holdings within an ETF.  This allows for smoother trading for buying and selling.  From that, executions can be planned better.

There is no reason not to have both individual stocks and ETFs in a portfolio.

Stocks like ExxonMobil, WalMart, and Coca-Cola allow for investors to gain from great company.  An ETF like SPDR Gold Shares (NYSE: GLD) allows for profits from what happens with gold.   A balanced portfolio with both should do well over the long term.