Author Topic: ETF or Index fund, which one?  (Read 2453 times)

neonlight

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ETF or Index fund, which one?
« on: August 11, 2017, 11:01:35 PM »
Hi guys, I am putting my money for the first time into either.

Advice appreciated :)

MY understanding:

ETF, I was told, has a higher management fees and needs a longer holding period, less suited for average retail investors.

Index - is simpler but doesn't yield and might have weaker dividend policy.


Lobo

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Re: ETF or Index fund, which one?
« Reply #1 on: August 11, 2017, 11:42:27 PM »
What you were told is incorrect.  You should do some research before you invest your money.  Figure out what fund you want to invest in and why.

neonlight

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Re: ETF or Index fund, which one?
« Reply #2 on: August 12, 2017, 02:12:01 AM »
What you were told is incorrect.  You should do some research before you invest your money.  Figure out what fund you want to invest in and why.

You are probably right, and maybe I should have read more before asking
 

MoseyingAlong

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Re: ETF or Index fund, which one?
« Reply #3 on: August 12, 2017, 04:02:55 AM »
Hey,

Here's a link to Vanguard with a few differences
https://investor.vanguard.com/etf/etf-vs-mutual-fund?lang=en

And a little more info from the Motley Fool
https://www.fool.com/investing/2016/08/26/etf-vs-index-fund-which-is-best-for-you.aspx

Either way I recommend sticking with an index fund, whether ETF (exchange traded fund) or mutual fund. I generally go with ETFs in taxable brokerage accounts and mutual funds with tax-advantaged accounts.

Happy learning!

simmias

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Re: ETF or Index fund, which one?
« Reply #4 on: August 12, 2017, 05:21:18 AM »
I'd read the Bogleheads wiki: https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

And then read a few threads over there.  This recent one has great info: https://www.bogleheads.org/forum/viewtopic.php?t=222467

The answer really depends on where and how much you're investing.

GenXbiker

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Re: ETF or Index fund, which one?
« Reply #5 on: August 12, 2017, 05:57:29 AM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

neonlight

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Re: ETF or Index fund, which one?
« Reply #6 on: August 12, 2017, 09:14:57 AM »
Hey,

Here's a link to Vanguard with a few differences
https://investor.vanguard.com/etf/etf-vs-mutual-fund?lang=en

And a little more info from the Motley Fool
https://www.fool.com/investing/2016/08/26/etf-vs-index-fund-which-is-best-for-you.aspx

Either way I recommend sticking with an index fund, whether ETF (exchange traded fund) or mutual fund. I generally go with ETFs in taxable brokerage accounts and mutual funds with tax-advantaged accounts.

Happy learning!

Heys, thanks so much!

So much of reading for the weekend :)

neonlight

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Re: ETF or Index fund, which one?
« Reply #7 on: August 12, 2017, 09:15:42 AM »
I'd read the Bogleheads wiki: https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

And then read a few threads over there.  This recent one has great info: https://www.bogleheads.org/forum/viewtopic.php?t=222467

The answer really depends on where and how much you're investing.

More reading stuff. I'll be coming back asking questions, hope you don't mind ;)

neonlight

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Re: ETF or Index fund, which one?
« Reply #8 on: August 12, 2017, 09:17:10 AM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

Thanks,

My questions are super simple. Is mutual fund same with index fund?

I read a super short article saying that for passive and smaller-ticket investors it's easier with index funds. Maybe your switch was due to the fact that you became better and the wallet fatter? :)

human

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Re: ETF or Index fund, which one?
« Reply #9 on: August 12, 2017, 09:36:49 AM »
From what I understand mutual funds are easier because you can simply transfer funds no need to buy on an exchange like etfs. In Canada the only way to get vanguard and ishares is with etfs. If mutual funds had been an option I may have gone that route.


L.A.S.

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Re: ETF or Index fund, which one?
« Reply #10 on: August 12, 2017, 09:37:36 AM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

Thanks,

My questions are super simple. Is mutual fund same with index fund?

I read a super short article saying that for passive and smaller-ticket investors it's easier with index funds. Maybe your switch was due to the fact that you became better and the wallet fatter? :)

Sorry... but there seems to be some confusion about the basics.

A mutual fund is a company that has the sole purpose of investing in other assets such as company stock or bonds, and pass on the benefit of the investments to the mutual fund owners.  A mutual fund is ordinarily transacted once per day by buying or selling shares directly with the fund sponsor (e.g. Vanguard or Fidelity, to name but two).  An order to buy or sell (in either shares or dollars) can be made at any time and it will execute at the end of the next trading day.

An index mutual fund is a mutual fund that has the stated goal of replicating an index.  Hence an index fund.  Index funds generally have low fees.

An active mutual fund is run by a manager that claims to know better and can beat the index (or other set benchmark).  The active fund will usually charge a higher baked in fee, or expense ratio, for these services.

An ETF is a mutual fund which is attached to a stock certificate.  So, for ordinary investors, the shares of the fund are traded on a stock exchange instead of with the sponsor directly.  An ETF must be traded using a stock trading ticket when the market is open.  An investor in an ETF may be charged a trade commission (as opposed to no-load mutual funds transacted with the sponsor where there is no commission).  Most ETFs track some form of an index, since active management is difficult using the peculiarities of the ETF structure -- this causes people to believe that ETFs categorically have lower fees than mutual funds.  But, the lower ETF fees are idue to the fact that they track an index and are not actively managed and not from an inherent characteristic of being an ETF. One would have to look up the expense ratios of an ETF and corresponding index mutual fund to make a determination on a case-by-case basis to determine which is cheaper.

With regard to you questions about dividends, I'm not sure I follow.  Both ETFs and mutual funds are required to pass-through any dividends or interest they receive to the investor in the form of distributions.  So the amount of these  would be dictated by the underlying assets of each fund holds.  I would note that mutual funds can be set to auto-reinvest dividends and so this is a very convenient feature.  ETF dividends must be reinvested by hand using a stock market trading ticket (although I think some firms simulate a way to reinvest ETF distributions automatically, its not really the same IMO).

human

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Re: ETF or Index fund, which one?
« Reply #11 on: August 12, 2017, 09:40:17 AM »
Even though im in Canada I found bogleheads to be a great place to start. https://www.bogleheads.org/wiki/Main_Page

Laserjet3051

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Re: ETF or Index fund, which one?
« Reply #12 on: August 12, 2017, 11:19:36 AM »
Also keep in mind, that what may be "right" for one person is not "right" for another. etf vs. mutual fund is a personal decision for which there is no one "right" answer. I would also add that to truly compare the potential cost difference between etf and mutual fund (ER) one MUST also factor in the bid/ask spread on the etf as an additional cost. Vanguard reports these spreads for their etfs in a chart on their site. Rule of thumb is the bigger the spread, the bigger the cost, though one can mitigate this to some extent by placing limit orders for etfs, with the limit price set closer to the avg bid price (as opposed to asking price).

If all of this jargon intimidates you, then maybe a mutual fund is the better route. An hour of reading on this subject should be extremely empowering though, it aint rocket science.

GenXbiker

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Re: ETF or Index fund, which one?
« Reply #13 on: August 12, 2017, 11:55:52 AM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

Thanks,

My questions are super simple. Is mutual fund same with index fund?

I read a super short article saying that for passive and smaller-ticket investors it's easier with index funds. Maybe your switch was due to the fact that you became better and the wallet fatter? :)

Some of my first mutual funds were active management funds and had higher expense ratios.  I still have some of them.  They had minimum investments of $3000 or higher each.

Some of my first funds were mutual index funds, that track an index vs. actively managed, which had lower expense ratios.  They also had minimum investments (I think $3000 ea.)  I still have these as well.

I later started investing in ETFs.  I originally started investing in ETFs for 2 primary reasons:

1) The expense ratio for Vanguard's ETF was lower than the equivalent mutual index fund investor share class.  Although, since then, some of my mutual index funds have over $10,000 and are now Admiral shares, with the same expense ratio as the equivalent ETF.

2) I wanted to be able to buy like a stock through the trading day using market/limit/stop/stop-limit orders as I can do with ETFs rather than my shares being priced at whatever the share price is at the close of the regular trading as with mutual funds (whether actively managed or indexed).  And the ETF orders can be only for the business day or GTC (good till canceled) for 60 days, so I can set a buy price, and it will trigger if the share price drops to what I have set the order for if it hits that target within 60 days (unless I cancel prior to that.)

I can't speak for others, but Vanguard gives the option of reinvesting dividends with both.
https://investor.vanguard.com/investing/brokerage-dividend-reinvestment?lang=en

Edit: One other note.  I always buy and hold the ETF funds for years (have never sold), so bid/ask spread will not be an "expense" for existing shares during the years that I hold them, just at the point I buy and point I sell.
« Last Edit: August 12, 2017, 08:24:44 PM by GenXbiker »

RedmondStash

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Re: ETF or Index fund, which one?
« Reply #14 on: August 12, 2017, 07:56:31 PM »
I'm more accustomed to stock trades (market order, limit order, intraday trades), but I didn't understand about the difference between mutual funds & ETFs, so I bought all index (mutual) funds when I moved a chunk of money to Vanguard. I'm kicking myself now; I wish I'd bought all comparable ETFs instead.

Vanguard will convert index funds to their comparable ETF (I think even without tax ramifications), but I don't believe they will convert from ETFs back to index funds. I may do that conversion thing at some point. I just like the more precise price & trade control you get with ETFs, though honestly I don't buy or sell very often.

neonlight

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Re: ETF or Index fund, which one?
« Reply #15 on: August 13, 2017, 02:43:14 AM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

Thanks,

My questions are super simple. Is mutual fund same with index fund?

I read a super short article saying that for passive and smaller-ticket investors it's easier with index funds. Maybe your switch was due to the fact that you became better and the wallet fatter? :)

Sorry... but there seems to be some confusion about the basics.

A mutual fund is a company that has the sole purpose of investing in other assets such as company stock or bonds, and pass on the benefit of the investments to the mutual fund owners.  A mutual fund is ordinarily transacted once per day by buying or selling shares directly with the fund sponsor (e.g. Vanguard or Fidelity, to name but two).  An order to buy or sell (in either shares or dollars) can be made at any time and it will execute at the end of the next trading day.

An index mutual fund is a mutual fund that has the stated goal of replicating an index.  Hence an index fund.  Index funds generally have low fees.

An active mutual fund is run by a manager that claims to know better and can beat the index (or other set benchmark).  The active fund will usually charge a higher baked in fee, or expense ratio, for these services.

An ETF is a mutual fund which is attached to a stock certificate.  So, for ordinary investors, the shares of the fund are traded on a stock exchange instead of with the sponsor directly.  An ETF must be traded using a stock trading ticket when the market is open.  An investor in an ETF may be charged a trade commission (as opposed to no-load mutual funds transacted with the sponsor where there is no commission).  Most ETFs track some form of an index, since active management is difficult using the peculiarities of the ETF structure -- this causes people to believe that ETFs categorically have lower fees than mutual funds.  But, the lower ETF fees are idue to the fact that they track an index and are not actively managed and not from an inherent characteristic of being an ETF. One would have to look up the expense ratios of an ETF and corresponding index mutual fund to make a determination on a case-by-case basis to determine which is cheaper.

With regard to you questions about dividends, I'm not sure I follow.  Both ETFs and mutual funds are required to pass-through any dividends or interest they receive to the investor in the form of distributions.  So the amount of these  would be dictated by the underlying assets of each fund holds.  I would note that mutual funds can be set to auto-reinvest dividends and so this is a very convenient feature.  ETF dividends must be reinvested by hand using a stock market trading ticket (although I think some firms simulate a way to reinvest ETF distributions automatically, its not really the same IMO).

Thanks alot. I sure have alot of reading to do. Can I simplify by saying (the buying part) if I want to get mutual funds or index funds I have to go to the bank or brokers that sells them, and for ETF I can buy it directly from the exchange if I have a trading account?

neonlight

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Re: ETF or Index fund, which one?
« Reply #16 on: August 13, 2017, 02:49:02 AM »
I'm more accustomed to stock trades (market order, limit order, intraday trades), but I didn't understand about the difference between mutual funds & ETFs, so I bought all index (mutual) funds when I moved a chunk of money to Vanguard. I'm kicking myself now; I wish I'd bought all comparable ETFs instead.

Vanguard will convert index funds to their comparable ETF (I think even without tax ramifications), but I don't believe they will convert from ETFs back to index funds. I may do that conversion thing at some point. I just like the more precise price & trade control you get with ETFs, though honestly I don't buy or sell very often.

Again super newbie question here, for Vanguard ETF I can buy with my stock trading account, and for their mutual funds I have to approach them to buy?

neonlight

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Re: ETF or Index fund, which one?
« Reply #17 on: August 13, 2017, 02:57:45 AM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

Thanks,

My questions are super simple. Is mutual fund same with index fund?

I read a super short article saying that for passive and smaller-ticket investors it's easier with index funds. Maybe your switch was due to the fact that you became better and the wallet fatter? :)

Some of my first mutual funds were active management funds and had higher expense ratios.  I still have some of them.  They had minimum investments of $3000 or higher each.

Some of my first funds were mutual index funds, that track an index vs. actively managed, which had lower expense ratios.  They also had minimum investments (I think $3000 ea.)  I still have these as well.

I later started investing in ETFs.  I originally started investing in ETFs for 2 primary reasons:

1) The expense ratio for Vanguard's ETF was lower than the equivalent mutual index fund investor share class.  Although, since then, some of my mutual index funds have over $10,000 and are now Admiral shares, with the same expense ratio as the equivalent ETF.

2) I wanted to be able to buy like a stock through the trading day using market/limit/stop/stop-limit orders as I can do with ETFs rather than my shares being priced at whatever the share price is at the close of the regular trading as with mutual funds (whether actively managed or indexed).  And the ETF orders can be only for the business day or GTC (good till canceled) for 60 days, so I can set a buy price, and it will trigger if the share price drops to what I have set the order for if it hits that target within 60 days (unless I cancel prior to that.)

I can't speak for others, but Vanguard gives the option of reinvesting dividends with both.
https://investor.vanguard.com/investing/brokerage-dividend-reinvestment?lang=en

Edit: One other note.  I always buy and hold the ETF funds for years (have never sold), so bid/ask spread will not be an "expense" for existing shares during the years that I hold them, just at the point I buy and point I sell.

My short weekend reading says that mutual funds usually have more expense ratio, the more actively managed the higher.

I could also try Admiral shares if it starts from 10k. Bobbleheads suggests just 1-4 funds to focus, maybe that's better than to buy into individual S&P company Shares.

Dicey

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Re: ETF or Index fund, which one?
« Reply #18 on: August 13, 2017, 03:14:41 AM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

Thanks,

My questions are super simple. Is mutual fund same with index fund?

I read a super short article saying that for passive and smaller-ticket investors it's easier with index funds. Maybe your switch was due to the fact that you became better and the wallet fatter? :)

Sorry... but there seems to be some confusion about the basics.

A mutual fund is a company that has the sole purpose of investing in other assets such as company stock or bonds, and pass on the benefit of the investments to the mutual fund owners.  A mutual fund is ordinarily transacted once per day by buying or selling shares directly with the fund sponsor (e.g. Vanguard or Fidelity, to name but two).  An order to buy or sell (in either shares or dollars) can be made at any time and it will execute at the end of the next trading day.

An index mutual fund is a mutual fund that has the stated goal of replicating an index.  Hence an index fund.  Index funds generally have low fees.

An active mutual fund is run by a manager that claims to know better and can beat the index (or other set benchmark).  The active fund will usually charge a higher baked in fee, or expense ratio, for these services.

An ETF is a mutual fund which is attached to a stock certificate.  So, for ordinary investors, the shares of the fund are traded on a stock exchange instead of with the sponsor directly.  An ETF must be traded using a stock trading ticket when the market is open.  An investor in an ETF may be charged a trade commission (as opposed to no-load mutual funds transacted with the sponsor where there is no commission).  Most ETFs track some form of an index, since active management is difficult using the peculiarities of the ETF structure -- this causes people to believe that ETFs categorically have lower fees than mutual funds.  But, the lower ETF fees are idue to the fact that they track an index and are not actively managed and not from an inherent characteristic of being an ETF. One would have to look up the expense ratios of an ETF and corresponding index mutual fund to make a determination on a case-by-case basis to determine which is cheaper.

With regard to you questions about dividends, I'm not sure I follow.  Both ETFs and mutual funds are required to pass-through any dividends or interest they receive to the investor in the form of distributions.  So the amount of these  would be dictated by the underlying assets of each fund holds.  I would note that mutual funds can be set to auto-reinvest dividends and so this is a very convenient feature.  ETF dividends must be reinvested by hand using a stock market trading ticket (although I think some firms simulate a way to reinvest ETF distributions automatically, its not really the same IMO).

Thanks alot. I sure have alot of reading to do. Can I simplify by saying (the buying part) if I want to get mutual funds or index funds I have to go to the bank or brokers that sells them, and for ETF I can buy it directly from the exchange if I have a trading account?
Dear neonlight,
I am FIRE now, with more money than I ever dreamed possible. But once upon a time, I was you. Please read the rest of what I have to say as if this is me speaking to my Past Self.

Dicey Dear,
Please do not let yourself be confused by L.A.S.' overly complicated and perhaps not even fully correct response. Skip it completely for now. Instead, read the articles linked upthread, more than once if you need to, because they will help, I assure you. Then read a bit over at jlcollinsnh.com, working yourself up to his famous Stock Series article. Then come back with your questions. We're here to help and we'll be happy to wait. We want you to succeed, and you are damn smart for asking your questions here and now. Someday, in the not-too-distant future, enough of this will make sense, and you will reach your goals.
Love,
FIRE Dicey
I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

Dicey

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Re: ETF or Index fund, which one?
« Reply #19 on: August 13, 2017, 04:32:55 AM »
I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

L.A.S.

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Re: ETF or Index fund, which one?
« Reply #20 on: August 13, 2017, 06:01:58 AM »

Thanks alot. I sure have alot of reading to do. Can I simplify by saying (the buying part) if I want to get mutual funds or index funds I have to go to the bank or brokers that sells them, and for ETF I can buy it directly from the exchange if I have a trading account?

More or less.

Most people just set up a brokerage account with either Fidelity, Vanguard, or Schwab for example.  Then they can conveniently buy or sell mutual funds with the sponsor or they can buy any ETF they like and hold them in the same account.

L.A.S.

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Re: ETF or Index fund, which one?
« Reply #21 on: August 13, 2017, 06:38:54 AM »

Dicey Dear,
Please do not let yourself be confused by L.A.S.' overly complicated and perhaps not even fully correct response. Skip it completely for now. Instead, read the articles linked upthread, more than once if you need to, because they will help, I assure you. Then read a bit over at jlcollinsnh.com, working yourself up to his famous Stock Series article. Then come back with your questions. We're here to help and we'll be happy to wait. We want you to succeed, and you are damn smart for asking your questions here and now. Someday, in the not-too-distant future, enough of this will make sense, and you will reach your goals.
Love,
FIRE Dicey


You know, I actually sort of agree with this.  I may not be correct on everything.   And, I did simplify a few things and I glossed over some exceptions.

Anyway, don't get bogged down with analysis paralysis.  There is an unlimited amount of information available to consume, you'll never get started if you need to figure everything out first.

Nothlit

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Re: ETF or Index fund, which one?
« Reply #22 on: August 13, 2017, 08:04:49 AM »
I prefer (index) mutual funds instead of ETFs largely because I find it simpler to buy mutual funds. If I have a specific dollar amount set aside to invest, all I have to do is say "buy exactly this much of this mutual fund" and it's done. With ETFs, you can only buy in whole-share increments, which means you will almost never be able to buy an amount that exactly matches the money you have set aside to invest. You will end up with some money left over.

In other words, let's say I had $1200 available to invest this month and I want to put it in Vanguard's Total Stock Market Fund. I can either a) invest all $1200 of it in VTSAX or b) invest $1125 of it in 9 shares of VTI (currently at ~$125 per share) and have $75 left over.

This doesn't even get into things like market vs. limit orders for ETF transactions, which are yet another complication I'd rather not have to think about.

neonlight

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Re: ETF or Index fund, which one?
« Reply #23 on: August 13, 2017, 08:49:55 AM »
P.S. Here's another thread that might be helpful.

https://forum.mrmoneymustache.com/investor-alley/why-is-investing-so-important-i'm-afraid/msg1650833/#msg1650833

Thanks man. Am going through the Bogleheads right now, starting with their introductory, a pretty good advocacy for share/bond portfolio is:

1. US stocks
2. International stocks
3. US bonds.

I probably need to substitute US bonds with some others maybe bonds from my country. 

The none stocks I hold are properties, cash, and crypto. I have some P2P lendings (LC variations) but I might just drop that since I just don't have time to check it often enough, and it always fall out of sight. Not that it isn't yielding, it is. Just that I am setting to auto-invest and I don't like the feeling that I don't know's happening with it, maybe I need to change my mentality.
« Last Edit: August 13, 2017, 08:52:26 AM by neonlight »

neonlight

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Re: ETF or Index fund, which one?
« Reply #24 on: August 13, 2017, 08:53:26 AM »

Dicey Dear,
Please do not let yourself be confused by L.A.S.' overly complicated and perhaps not even fully correct response. Skip it completely for now. Instead, read the articles linked upthread, more than once if you need to, because they will help, I assure you. Then read a bit over at jlcollinsnh.com, working yourself up to his famous Stock Series article. Then come back with your questions. We're here to help and we'll be happy to wait. We want you to succeed, and you are damn smart for asking your questions here and now. Someday, in the not-too-distant future, enough of this will make sense, and you will reach your goals.
Love,
FIRE Dicey


You know, I actually sort of agree with this.  I may not be correct on everything.   And, I did simplify a few things and I glossed over some exceptions.

Anyway, don't get bogged down with analysis paralysis.  There is an unlimited amount of information available to consume, you'll never get started if you need to figure everything out first.

Thanks L.A.S, appreciate your comments, this one and the previous one. Of course there's some jargons, but I might as well take some time to learn it, it's money matters :)

neonlight

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Re: ETF or Index fund, which one?
« Reply #25 on: August 13, 2017, 08:57:17 AM »
I prefer (index) mutual funds instead of ETFs largely because I find it simpler to buy mutual funds. If I have a specific dollar amount set aside to invest, all I have to do is say "buy exactly this much of this mutual fund" and it's done. With ETFs, you can only buy in whole-share increments, which means you will almost never be able to buy an amount that exactly matches the money you have set aside to invest. You will end up with some money left over.

In other words, let's say I had $1200 available to invest this month and I want to put it in Vanguard's Total Stock Market Fund. I can either a) invest all $1200 of it in VTSAX or b) invest $1125 of it in 9 shares of VTI (currently at ~$125 per share) and have $75 left over.

This doesn't even get into things like market vs. limit orders for ETF transactions, which are yet another complication I'd rather not have to think about.

That's the same thought really.

However it's not possible for me to buy Vanguard funds even though I really like them because they don't sell to non-residence, at least not in my part of the world. I might need to look into Fidelity or other funds that might do just that. I don't really want to invest via a third party and for them to go to Vanguard. The whole point for me to to divest so that I don't put all my money in my home country, or through any local agents. The plan is to have about 50% or less total value at home which most will be real estates, and the rest outside (including U.S.).

jlcnuke

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Re: ETF or Index fund, which one?
« Reply #26 on: August 13, 2017, 09:41:40 AM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

Thanks,

My questions are super simple. Is mutual fund same with index fund?

I read a super short article saying that for passive and smaller-ticket investors it's easier with index funds. Maybe your switch was due to the fact that you became better and the wallet fatter? :)

A mutual fund is a "type of investment". An ETF is also a "type of investment". An index fund is any type of fund (whether that be a "mutual fund" or an "exchange traded fund" that is designed to track the performance of an "index" (the S&P 500 is an example of an "index"). The typical alternative to an "index fund" is an "actively managed fund". An actively managed fund attempts to accomplish a specified goal by having a manager of the fund who "actively" buys and sells stocks to try and achieve the objective.

An "index" fund (whether ETF or mutual fund) will almost always have a much lower set of fees (expenses etc) relative to an actively managed fund since the manager just needs to set it up and then just do whatever the index it is tracking does going forward while the actively managed fund's manager is constantly researching, trading etc.
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Dicey

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Re: ETF or Index fund, which one?
« Reply #27 on: August 13, 2017, 12:14:20 PM »
Ooh, here's more good stuff, especially from FrankiesGirl and the OP's awesome progress since starting the thread.

https://forum.mrmoneymustache.com/investor-alley/putting-to-many-eggs-in-one-basket/msg1636281/#msg1636281

BTW, where are you neonlight? Almost all this advice has been US-centric. Things vary quite a bit by country. If you include that info, I'm sure you will get more feedback that's relevant to the opportunities in your corner of the world.
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neonlight

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Re: ETF or Index fund, which one?
« Reply #28 on: August 13, 2017, 08:50:36 PM »
Do the research.

When I started my own investing through Vanguard, I started out with mutual funds for my brokerage and Roth accounts.  I was spread out over different funds in my brokerage account and didn't have enough for Admiral shares.

I continued with mutual funds for some time but later switched to ETFs for new investments.  I still have most of the mutual funds that I originally invested into along with automatic dividend reinvestment, but in recent years, all my new investments are with ETFs in both my brokerage and Roth brokerage accounts, also with automatic dividend reinvestment.

Thanks,

My questions are super simple. Is mutual fund same with index fund?

I read a super short article saying that for passive and smaller-ticket investors it's easier with index funds. Maybe your switch was due to the fact that you became better and the wallet fatter? :)

A mutual fund is a "type of investment". An ETF is also a "type of investment". An index fund is any type of fund (whether that be a "mutual fund" or an "exchange traded fund" that is designed to track the performance of an "index" (the S&P 500 is an example of an "index"). The typical alternative to an "index fund" is an "actively managed fund". An actively managed fund attempts to accomplish a specified goal by having a manager of the fund who "actively" buys and sells stocks to try and achieve the objective.

An "index" fund (whether ETF or mutual fund) will almost always have a much lower set of fees (expenses etc) relative to an actively managed fund since the manager just needs to set it up and then just do whatever the index it is tracking does going forward while the actively managed fund's manager is constantly researching, trading etc.

That sounds logical now :)

Index tracks the indices of something.
Index can be in the form of mutual funds or ETF.
Mutual fund is a fund managed by someone.
ETF is a "fund" you buy yourself on the exchange. 

neonlight

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Re: ETF or Index fund, which one?
« Reply #29 on: August 13, 2017, 08:57:35 PM »
Ooh, here's more good stuff, especially from FrankiesGirl and the OP's awesome progress since starting the thread.

https://forum.mrmoneymustache.com/investor-alley/putting-to-many-eggs-in-one-basket/msg1636281/#msg1636281

BTW, where are you neonlight? Almost all this advice has been US-centric. Things vary quite a bit by country. If you include that info, I'm sure you will get more feedback that's relevant to the opportunities in your corner of the world.

Thanks, let me read it!

I am from Malaysia, work brings me a few months each (sometimes a year) around East Asia. Good thing is I get to see how things are happening in the region, and whom I should or should not bet on.

For example, REIT market was hot, and now seems to slow down in Singapore and Malaysia but we haven't seen the best of Indonesia yet. Another example is the HK exchange, the PE ratio is obscenely high, but it double obscene in Shanghai. I could go on and on. ;) So having the chance to see all this, I am dipping my toe into stock/ETFs for the first time this year. :)

Dicey

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Re: ETF or Index fund, which one?
« Reply #30 on: August 14, 2017, 01:25:36 AM »
This area is totally out of my range of experience, so I don't know if I can be particularly helpful. I responded to your plea because I remembered asking the same type of questions long ago, but the information was less far accessible then.

I'm only posting to add that the Mustachian approach seems to favor more of a buy and hold approach, and your last post seems a little, um, jumpier? Not sure. I just want to encourage you to learn first, create a strategy, then deploy your green soldiers last. Don't be in a rush to throw your money into things you don't yet fully understand. Your time horizon is long. Taking time to learn and understand before you invest will reward you handsomely in the long run.
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neonlight

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Re: ETF or Index fund, which one?
« Reply #31 on: August 14, 2017, 03:33:04 AM »
This area is totally out of my range of experience, so I don't know if I can be particularly helpful. I responded to your plea because I remembered asking the same type of questions long ago, but the information was less far accessible then.

I'm only posting to add that the Mustachian approach seems to favor more of a buy and hold approach, and your last post seems a little, um, jumpier? Not sure. I just want to encourage you to learn first, create a strategy, then deploy your green soldiers last. Don't be in a rush to throw your money into things you don't yet fully understand. Your time horizon is long. Taking time to learn and understand before you invest will reward you handsomely in the long run.

I hope that I can offer wise advice to someone five years later like you did. :) Hence a little jumpy, when people are  open to sharing.

Despite discovering MMM fairly recently. I have known prior that:

1. it's extremely hard to time the market
2. active trading is not always the best option (aka you are your own enemy)
3. everything starts with savings (i am an aggressive saver but have never put thought into investing)

What I did learn in the forum is very valuable, especially

1. balancing portfolio, there is an inherent ability for everyone to balance the risk, but it's also human nature that you start throwing everything at what's making money, thus unbalancing the portfolio. I need to dig myself up by putting less money into cryptocurrency, as it might look like great investment now but not so sure for how long more.

I am currently reading on gold, ETFs/mutual, REITs, and am likely to diversify into two of these. Overall that's so much reading to do. And I'll be coming back for more questions.

Have gone off topic but thanks Dicey.
« Last Edit: August 14, 2017, 09:46:53 AM by neonlight »

jlcnuke

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Re: ETF or Index fund, which one?
« Reply #32 on: August 14, 2017, 04:19:49 AM »
This area is totally out of my range of experience, so I don't know if I can be particularly helpful. I responded to your plea because I remembered asking the same type of questions long ago, but the information was less far accessible then.

I'm only posting to add that the Mustachian approach seems to favor more of a buy and hold approach, and your last post seems a little, um, jumpier? Not sure. I just want to encourage you to learn first, create a strategy, then deploy your green soldiers last. Don't be in a rush to throw your money into things you don't yet fully understand. Your time horizon is long. Taking time to learn and understand before you invest will reward you handsomely in the long run.

I hope that I can offer wise advice to someone five years later like you did. :) Hence a little jumpy, when people are  open to sharing.

Despite discovering MMM fairly recently. I have known prior that:

1. it's extremely hard to time the market
2. active trading is not always the best option (aka you are your own enemy)
3. everything starts with savings (i am an aggressive saver but have never put thought into investing)

What I did learn in the forum is very valuable, especially

1. balancing portfolio, there is an inherent ability for everyone to balance the risk, but it's also human nature that you start throwing everything at what's making money, thus unbalancing the portfolio. I need to dig myself up by putting more money into cryptocurrency, which might look like great investment now but not in the future.

I am currently reading on gold, ETFs/mutual, REITs, and am likely to diversify into two of these. Overall that's so much reading to do. And I'll be coming back for more questions.

Have gone off topic but thanks Dicey.

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Bicycle_B

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Re: ETF or Index fund, which one?
« Reply #33 on: August 14, 2017, 07:59:23 AM »

I hope that I can offer wise advice to someone five years later like you did. :) Hence a little jumpy, when people are  open to sharing.

Despite discovering MMM fairly recently. I have known prior that:

1. it's extremely hard to time the market
2. active trading is not always the best option (aka you are your own enemy)
3. everything starts with savings (i am an aggressive saver but have never put thought into investing)

What I did learn in the forum is very valuable, especially

1. balancing portfolio, there is an inherent ability for everyone to balance the risk, but it's also human nature that you start throwing everything at what's making money, thus unbalancing the portfolio. I need to dig myself up by putting more money into cryptocurrency, which might look like great investment now but not in the future.

I am currently reading on gold, ETFs/mutual, REITs, and am likely to diversify into two of these. Overall that's so much reading to do. And I'll be coming back for more questions.

Have gone off topic but thanks Dicey.

@Neonlight, one tool you could use to visualize the effect of different portfolio allocation choices is portfoliocharts.com.
https://portfoliocharts.com/

It doesn't have many Asia-specific options, but it has calculators based on historical data in other geographic areas that shows the result of various portfolio choices.  You can enter various allocation strategies and it will display what the result would have been.  A number of allocations that others have found useful are also shown as food for thought.  As you read, and consider different choices, you could explore what similar choices would have caused in historical markets. 

I don't want to overly complicate things.  You don't have to use it, obviously.  It's just a way to integrate your new knowledge without risking real-life changes in your holdings.
« Last Edit: August 14, 2017, 08:01:23 AM by Bicycle_B »

GenXbiker

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Re: ETF or Index fund, which one?
« Reply #34 on: August 14, 2017, 10:45:20 AM »
I am currently reading on gold, ETFs/mutual, REITs, and am likely to diversify into two of these.
You can diversify with mutual funds and/or ETFs.  I have an REIT ETF.  I would keep your stake in gold relatively small.  Also see this thread:
https://forum.mrmoneymustache.com/investor-alley/time-to-buy-gold/