ETF only portfolio

[webbach]

I have seen conflicting opinions as to whether etfs should be one's sole equities investment vehicle. The pros: liquidity, built-in diversification, trim management and trading expenses. The cons: watered down dividends vs buying only high-yield equities, (lately) over-specialization, the possibility of duplication across multiple issues, and (the big one) over-weighing by market cap.

I feel that the pros outweigh the cons in my instance; can anyone help me in reinforcing my feeling, or can anyone justify why one shouldn't look toward etfs for one's primary investment vehicle?

 

[brewer12345]

No real difference between ETFs and mutual funds. Nothing wrong with a portfolio made up of either.

 

[webbach]

The "manager" that "handles" my sep continually tries to steer me toward individual issues. Whenever I've bought individual issues in my er brokerage account, I get a strange buyer's remorse because I don't want to unreel my gains until I am in long-term territory.

 

[brewer12345]

The "manager" that "handles" my sep continually tries to steer me toward individual issues. Whenever I've bought individual issues in my er brokerage account, I get a strange buyer's remorse because I don't want to unreel my gains until I am in long-term territory.

If you are prepared to read a lot of SEC filings, build a detailed model on each holding, and follow the indstry each is in, then individual issues are great. If not, buy funds or ETFs.

 

[FinanceDude]

If you are prepared to read a lot of SEC filings, build a detailed model on each holding, and follow the indstry each is in, then individual issues are great. If not, buy funds or ETFs.

Agreed...........which is why I quit picking stocks some time ago.........unless that was my ONLY thing to do......too time consuming........

 

[webbach]

Can we take this a step further. Any ETFers out there, can we talk about preferred issues? I have been going with 35% US with ijr, spy, qqqq; 15% emerging with eem; 25% stable foreign with ezu, and 20-25% commodities (leaning toward oil) or real with ixc: would like to venture into REITs if I can unravel my already real estate heavy allocation.

I have tried dvy to get dividend yield, but found a corresponding dilution in cap gains. I have bought pho for my commodity allocation to buy into the impending water doom. I have looked at the wisdomtree issues, but I am gun shy since they seem to be too new to benchmark effectively. I have thought about a commodity pure play like gld, silver, or other metals. Any input into any of this?

 

[bpp]

Why EEM, when VWO is cheaper?

 

[webbach]

Now we're talking! vwo: .3% e.r., 11.9 p/e. eem: .75% e.r., 13.8 p/e. YTD is almost even. That is just skimming the surface. Thanks for the tip!

 

[brewer12345]

Um, 20 to 25% commodities?! Wow.

I like DJP best for commodities exposure.

 

[FinanceDude]

Um, 20 to 25% commodities?! Wow.

I like DJP best for commodities exposure.

Must have read about the Yale Endowment, and their use of "managed futures"........

 

[webbach]

The 20-25% was supposed to be commodities/real estate. For the past ~10 years, all my investment has been in real estate and my business, so I feel that I am already overloaded in real. However, when my portfolio grows, I will probably go ~10% REIT + investment real estate, and the other 10-15% stick with commodities. Thanks for the heads-up on DJP. I should probably check in with all the experts here on the board before I pull the trigger on picks.

 

[HFWR]

IGR, TIP, VGK, VPL, VWO...

SP500 fund, and Russ2000 fund are 401k in-house, with ERs of 0.06%. PCRIX for commodities. That's it...

 

[LOL!]

The cons: watered down dividends vs buying only high-yield equities, (lately) over-specialization, the possibility of duplication across multiple issues, and (the big one) over-weighing by market cap.

Have not the cons disappeared if you buy the right ETF?
There are dividend ETFs. And did not the WisdomTree ETFs address the overweighting by market cap issue?

We have about 50% of our after-tax investments in ETFs: SPY, MDY, EEM, PID, IWM. I prefer ETFs with the most volume and lowest bid/ask spread, though I am buy & hold. I have owned SPY and MDY for many years and will not sell just to get to a lower expense ratio.

 

[soupcxan]

Why is "lower transaction costs" cited as an advantage for ETFs? I can buy vanguard mutual funds for $0. How do you get lower than that? Are they paying people to buy ETFs? And if you are making monthly/quarterly purchases, the commissions for ETFs can add up quick.

 

[bpp]

Why is "lower transaction costs" cited as an advantage for ETFs? I can buy vanguard mutual funds for $0. How do you get lower than that? Are they paying people to buy ETFs? And if you are making monthly/quarterly purchases, the commissions for ETFs can add up quick.

Not everyone can buy direct from Vanguard, and brokerages have been raising their commissions on mutual funds the past few years. VTI is much cheaper to buy at TD Ameritrade than is VTSMX, for example.

Even without that, if you don't have enough for Admiral shares, then you may find that ETFs are still cheaper over the long run due to the generally lower ER (e.g., VTI @ 0.07% vs. VTSMX @ 0.19%), depending on how frequently you make your purchases.

Your mileage will vary according to your circumstances; tweak accordingly.

 

[preben]

Oh, and ETFs are SOOO much better for us US non-resident aliens, as often we can not even buy US-based funds.

A good portfolio I recommend to people who asks for a simple ETF portfolio starts with:

Equity:VTI+EFA+VWO (one can later split further into small caps/value/seperate EU Etc.)
Real stuff: GDX(gold stocks), VNQ or IGR(intl. reits), DJP(commodity futures)
Fixed income: AGG, GIM (foreign unhedged bonds, closed end fund as no ETF yet)

With the above 8 ETFs(well, 1 being a CEF) one pretty much covers the globe and all asset classes.

Personally I have added IWC(US micro caps) and use pimco funds for foreign bonds (PFUIX+PLMIX) and Vanguard for PM; VGPMX - might might at 1 point switch some of those to the above alternatives.

Cheers!

 

[brewer12345]

Why is "lower transaction costs" cited as an advantage for ETFs? I can buy vanguard mutual funds for $0. How do you get lower than that? Are they paying people to buy ETFs? And if you are making monthly/quarterly purchases, the commissions for ETFs can add up quick.

Just about everything for me is at Schwab, which charges hefty fees to buy VG funds. But for $10, I can buy an ETF.

 

[webbach]

SOUPCXAN, I am more concerned with the expense ratio, which is recurring annually, than with the transaction cost, which is a one-time fee. Think about it this way, each .1% you can save in expense ratio on a $1M portfolio saves you $1000. Don't get me wrong, I'd rather pay $10/trade than $175/trade, but we should all be hunting for the lowest expense ratios we can get, as well.

 

[preben]

Tdameritrade charges a hefty $40 for buying/selling mutual funds. No thanks! As a non-resident alien I can not sign up directly with Vanguard (except for their overpriced offshore/Irish division) Cheers!

 

[FinanceDude]

Just about everything for me is at Schwab, which charges hefty fees to buy VG funds. But for $10, I can buy an ETF.

Just about everybody charges a hefty fee to buy a Vanguard Fund..........maybe a portion goes to Vanguard to keep their ER's low??