ETF vs Index

[getoutearly]

I did a quick search on the forum and couldn't find a quick and dirty answer as to the benefits of ETF's vs index funds, and people's specific experience with one over the other.

Still trying to forumate my plan for escaping from the FA...

Any input?

Thanks

 

[LOL!]

http://www.radicalguides.com/2005/06/the_radical_gui.html is something you should read.

If you are going to invest $10,000 or more in a transaction, then ETFs are a good way to go. The $5 commission would not be onerous.

If you are going to invest $100 a month, then go with index funds because the ETF route would be a money loser because of the commission.

I own index funds and ETFs. Once you own them and do not trade, then there is little difference between them. It's the accumulation phase that is quite a bit different commission-wise.

 

[Nords]

I did a quick search on the forum and couldn't find a quick and dirty answer as to the benefits of ETF's vs index funds, and people's specific experience with one over the other.

Still trying to forumate my plan for escaping from the FA...

Any input?

It depends on what you're trying to do.

Vanguard has index funds whose expense ratios are far lower than ETFs. Their S&P500 fund has an ER that's a fraction of iShares' S&P600 Small-cap Value ETF (IJS).

So first pick your asset allocation (which I see you've been working on) and then decide whether it's better to go mutual fund or ETF. To refine that DCA discussion, I've seen articles suggesting you should DCA $10K-$25K in a Vanguard index fund and then move it all at once (one transaction) to an equivalent ETF... as long as the ETF ER is lower than the Vanguard ER.

I'm happier with ETFs because of the lower ER and the lack of management initiatives-- moving funds, messing with ERs, raising director's salaries, annual proxies, etc.

How hard is it to escape from the FA? Wouldn't you just set up an account with Vanguard or Fidelity and fill out their forms to transfer your assets in kind? They do the rest with the FA. You could give the FA a courtesy call to let them know what's coming their way but even that's not required.

Once the money's with the firm of your choice, you can fiddle to your heart's content without having to worry about the FA.

 

[cute fuzzy bunny]

I hold a mix of actively funds and index funds with vanguard. My ER across my ira and taxable fund is below 19 basis points.

I looked into doing some of what I do with ETF's. Possible to knock a few more basis points off. Not worth it.

So I think the question shouldnt approach from deciding between etf's and mutual funds, but rather to decide what you want to do and how you want to do it, then decide if an etf or fund is more appropriate to that need.

 

[JB]

See this page:
http://flagship5.vanguard.com/VGApp/hnw/content/Funds/FundsVIPERorMFContent.jsp

Vanguard's VIPERS are marginally less expensive than their investor class funds (.1% for Index500) and slightly less expensive than the admiral funds (.02% for index500).

edit:
You may also use the ETF to bypass fees associated with the investor funds. For example Vanguards Emerging Markets Index charges fees for purchase and redemption (.5%).

 

[bamsphd]

However, remember you need to factor in the bid/ask spread,
not just the commission cost, when you buy/sell an ETF.

 

[justin]

And the market price of ETF's can be higher than the Net Asset Value - by 1% sometimes (or 1% lower). In effect, you may end up paying a 1% sales charge for the ETF in addition to brokerage commission and bid/ask spread.

 

[cute fuzzy bunny]

However, remember you need to factor in the bid/ask spread,
not just the commission cost, when you buy/sell an ETF.

True of any stock. A lot of the 'super discount' brokers really sock it to you.

 

[treypar]

I am typically an index fan but I do like IJS and IJJ.

 

[SC]

I am typically an index fan but I do like IJS and IJJ.

I'm also an index fan and use IJJ for the mid-cap value slice of our portfolio, since Vanguard doesn't offer an index in that asset class.

SC

 

[Nords]

I am typically an index fan but I do like IJS and IJJ.

I've been liking IJS a whole lot since last Nov!