ETF's vs. Mutual Funds vs. just regular stocks............

[redgtxdi]

Just reading some articles on ETF's & noticing they're basically Index Fund minded but traded as a single stock?? (security)

I can't figure out why the heck somebody would want an ETF???


Mutual funds basically accomplish the same thing without so many trade penalties, don't they???

(Maybe I'm missing something)

TIA

 

[z0mb13]

ETF, since its a stock can be easily traded like a stock. That is the big advantage of it. Also if there is huge demand, there can be a premium on the stock (which means the stock value is higher than the value of the underlying security itself)

 

[henryay]

ETFs have lower costs and there is no minimum on how much you can put in.

 

[redgtxdi]

Ahhh.......OK, I can see them being ideal for someone who perhaps has large sums of money (millions?) that they want to invest.


But for the average Joe, I just don't see any advantage over a mutual fund.


My reasoning being that "index" funds typically are there because people choose to dollar-cost average out an amount of money over years or decades.

All things being equal, I don't see how the lower cost (ever so much lower) would outweigh the advantages of a mutual fund targeting the same index.

Being a long-term investment there's still just as much penalty during the trade. Unless, perhaps, the "premium" becomes some amount of money that can actually net something more than just a fraction of a percent increase.

???

 

[Deleted member 4644]

I just bought an ETF because I can buy it for $7 using scottrade.com just like any stock from scottrade.com... and its EASY because I don't have to talk to a broker or whatnot like I would with a regular fund. Trades just like a stock, cheap and easy.

 

[redgtxdi]

Originally posted by: LordSegan
I just bought an ETF because I can buy it for $7 using scottrade.com just like any stock from scottrade.com... and its EASY because I don't have to talk to a broker or whatnot like I would with a regular fund. Trades just like a stock, cheap and easy.

But if you want to invest some amount of money weekly, monthly/whatever........it's gonna cost!!!!

All you have is your original purchase price.

Might as well buy a blue chip like Coca Cola or something. Then you can enjoy splits, dividends (drips), company-based buy offers, etc.

I guess maybe I'm just more a "dollar cost average" guy than a "buy, hold & hope" kinda' guy.

 

[Deleted member 4644]

What are you talking about? As far as I know, sell mutual funds costs money doesn't it? Ever time I sell or buy it costs me $7 for an ETF. That isn't much I think...

 

[JS80]

Easy access to diversification. Mutual funds take longer to purchase/redeem.

/therad

 

[vi edit]

If you are buying in large lots, ETF's may be the better choice since you won't be facing sales charges or other fees that are tucked into many MF's. But you have to pay your broker comission fee. They also don't have the holding periods as were mentioned and you can easily track their value throughout the day. Mutual funds only update in price once per day.

A mutal fund is a better choice for most smaller investors since you can buy partial shares and don't get dinged a commission on each purchase. Mutual funds are great for somebody that wants to buy $250 a month in investments as part of an IRA or retirement plan. They aren't wasting away their appreciation with trade commissions each time they buy/sell.

***Clarification*** by large lots, I'm talking $10,000+ transactions.

 

[redgtxdi]

Originally posted by: LordSegan
What are you talking about? As far as I know, sell mutual funds costs money doesn't it? Ever time I sell or buy it costs me $7 for an ETF. That isn't much I think...

What I'm saying is that if you decide you like the ETF & you wanna buy more of it, it's $7 every time you buy. If I want to buy some every single solitary day in my Vanguard Index fund, it costs me absolutely $0.00!!!



To JS80:

Again, I repeat that index investors are typically "Dollar Cost Average/Long-Term" investors who don't care about a time frame on an hourly or daily basis. Sure, ETF may be instant, but I just don't see that game plan for a security that targets an index.

Like I said before, maybe it's strictly down to DCA vs. Buy & hold. I just don't like the idea of being stuck at an original purchase price. I like to buy all up & down the mountains while avoiding peaks & valleys!

 

[GasX]

ETFs have HUGE tax advantages over mutual funds.

If you buy mutual funds, you will owe Uncle Sam tax on long term and short term gains made from the fund manager's trading activity every year. This eats at your principal and lowers your true long term gain. There is no tax bill for an ETF until you sell it.

 

[redgtxdi]

Originally posted by: vi_edit
If you are buying in large lots, ETF's may be the better choice since you won't be facing sales charges or other fees that are tucked into many MF's. But you have to pay your broker comission fee. They also don't have the holding periods as were mentioned and you can easily track their value throughout the day. Mutual funds only update in price once per day.

A mutal fund is a better choice for most smaller investors since you can buy partial shares and don't get dinged a commission on each purchase. Mutual funds are great for somebody that wants to buy $250 a month in investments as part of an IRA or retirement plan. They aren't wasting away their appreciation with trade commissions each time they buy/sell.

***Clarification*** by large lots, I'm talking $10,000+ transactions.

I think that's well put! That makes sense.

I'll stick w/ funds!! (Dollar Cost Averagin' my life away!! Yeeehawwww!)

 

[LegendKiller]

for broad-based long-term investors, ETF's are the way to go. Low cost, no trickery, and it goes up with the market.

Alpha hunting by mutual funds and active management as a whole has been pretty much proven to be worthless over the long-run, unless you can find a manager that is consistantly skilled.

If you can get an ETF to replace the same type of MF, then do it.

 

[redgtxdi]

Originally posted by: LegendKiller
for broad-based long-term investors, ETF's are the way to go. Low cost, no trickery, and it goes up with the market.

Alpha hunting by mutual funds and active management as a whole has been pretty much proven to be worthless over the long-run, unless you can find a manager that is consistantly skilled.

If you can get an ETF to replace the same type of MF, then do it.

OK, but we're talking Index vs. Index.

Each has an advantage. Long term for long term which has the ultimate advantage??


Aside from IRA Index Funds (which I use almost exclusively for myself), let's say I have a regular taxable mutual fund for my kids. They've got 10-15 years to go before I give 'em the money.

S&P 500 Mutual fund............ Invest as often as I like & continue to grow the fund over that course of 10-15 years.

S&P 500 ETF.................Buy once & don't reinvest unless market takes a huge dump or something.


???????

 

[vi edit]

The expense ratio on the SPY (S&P 500 index ETF) is only .1%. On the Vanguard fund that follows that index (VFINX) the expense ratio is .18%. That's *almost* twice as high.

If you are buying a couple shares here and there, the MF is going to crush the EFT in returns. If you are buying large amounts, you'll do better with the ETF because your commission is spread out over a much larger purchase.

 

[speg]

I'm the opposite of you. I would hate to have part of my money being skimmed off by a mutual fund manager when I can go out and by an ETF instead.

But you're right, you put money into your fund every month (at no extra cost) whereas you would have an extra commission charge every time with an ETF. But I usually invest in chunks of money, and just put my monthly funds into the next chunk.

 

[GasX]

A viable strategy is to buy mutual funds via your dollar cost averaging monthly "set-aside". Then, when it is time to rebalance the portfolio, put a chunk of money into an ETF.