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ETF's or mutual funds for balancing AA
Old 08-22-2007, 02:14 PM   #1
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ETF's or mutual funds for balancing AA

Asset Allocation requires periodic balancing to maintain the selected balance. What is the best way to achieve this, with mutual funds or ETF’s? I know the answer is, “It depends.” So what does it depend on?

Let’s make some assumptions:

*Amount of $ to invest, for this exercise, go with 200000 taxed & 400000 tax-deferred
*Timing of withdrawals: use at least 5 years before withdrawal will begin
*ETF and fund is available for each category needed

Objective: low expenses, maximum returns

Other items: ETF cost a commission up front doesn’t it?

Mutual funds might also require an up-front fee if desired fund & your money are not in same company

What about cost to withdraw $ from ETF’s

The funds should be index funds for lowest cost

Has anyone made this comparison?

Are there any other items to consider in the comparison?
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Old 08-22-2007, 06:10 PM   #2
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I've found mutual funds to be more convenient than ETFs. I started with ETFs but when it came time to rebalance it was a question of buying/selling 23 shares. That's silly. I'm transitioning to mutual funds although the management fees are generally slightly higher.

Some asset classes are not actively traded in ETFs but are available as mutual funds. This impacts transaction cost significantly.

Since I'm truly anal-retentive, I think it would be cheaper to use ETFs for the actively traded ETFs but I'm driving towards simplicity.
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Old 08-23-2007, 06:45 AM   #3
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Thanks 2B. That's a good starting point. Maybe the ETF route is better for me since I tend NOT to AA balance as compulsively as I should.
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Old 08-23-2007, 08:27 AM   #4
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Quote:
Originally Posted by tightasadrum View Post
Thanks 2B. That's a good starting point. Maybe the ETF route is better for me since I tend NOT to AA balance as compulsively as I should.
You can do as much if not more with ETF's than funds, the growth has been staggering.

If you signup with an online broker, you can buy ETF's for $7 each, maybe less..........
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Old 08-23-2007, 11:19 AM   #5
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Vanguard has a calculator that allows you to compare ETF vs MF. I'm using ETF's as the amount I buy at a time and the low transaction fee I pay results in better long term gains with ETF's then with the corresponding MF.
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