The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Spe on March 13, 2015, 09:47:28 AM
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Hi. Im gonna buy these ETF's:
https://www.nordnet.no/mux/web/marknaden/aktiehemsidan/kursdata.html?identifier=IS3N&marketplace=4
Sell: 21,88
Buy: 21,81
https://www.nordnet.no/mux/web/marknaden/aktiehemsidan/index.html?identifier=SXR8&marketid=4
Sell: 178,59
Buy: 178,47
https://www.nordnet.no/mux/web/marknaden/aktiehemsidan/index.html?identifier=74569&marketid=11
Sell: 421,35
Buy: 420,60
I have no experience buying ETF's before. I heard that one of the extra costs/risks of buying a ETF compared to a normal index fund/mutual fund is the sell and buy spread. How are these buy and sell spread compared to other ETF's? How much will this spread cost me if I invest 600 dollars every month over 10 years for instance?
(I wrote the buy and sell spread per right now, but it changes continually as the trading day goes on)
My alternative is to buy a normal index fund, but they have 0,15% higher annual cost per year.
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So, you can buy shares right now at 21.88. You can sell shares at 21.81. So even absent any price change or commissions, you'd lose .07 / share or .32%. You could think of it as a relatively small load - you paid an upfront fee of .32% to buy the shares. Is that worth it? Depends.
If you hold it for a year, that cost could be pretty high. If you hold it for decades, it is hardly a blip.
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I heard that one of the extra costs/risks of buying a ETF compared to a normal index fund/mutual fund is the sell and buy spread.
And I heard the extra costs/risks of buying a mutual fund compared to a ETF is the sell and buy fees ;)
Each day your ETF or index fund will change in its price more then the spread is. Its likely that the difference between cheapest/most expensive stock exchange at a certain time point is higher then this difference at least once a day.
"0,15% higher annual cost per year"
That says it, doesnt it?
Divide the spread with the 0,15% and you have your answer: If you hold the ETF longer then 2 years, the spread costs you less then the fund (all other things equal).
But again: The time you buy on a given day is more important then the spread in most cases.
So if you buy automatically for 10 years, you can ignore virtually any spread. If the spread is more then one percent you probably shouldnt choose to buy it for 10 years anyway, because that ETF is too small or specialized.
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I heard that one of the extra costs/risks of buying a ETF compared to a normal index fund/mutual fund is the sell and buy spread.
And I heard the extra costs/risks of buying a mutual fund compared to a ETF is the sell and buy fees ;)
Each day your ETF or index fund will change in its price more then the spread is. Its likely that the difference between cheapest/most expensive stock exchange at a certain time point is higher then this difference at least once a day.
"0,15% higher annual cost per year"
That says it, doesnt it?
Divide the spread with the 0,15% and you have your answer: If you hold the ETF longer then 2 years, the spread costs you less then the fund (all other things equal).
But again: The time you buy on a given day is more important then the spread in most cases.
So if you buy automatically for 10 years, you can ignore virtually any spread. If the spread is more then one percent you probably shouldnt choose to buy it for 10 years anyway, because that ETF is too small or specialized.
That's not how that works. The expense ratio is charged to the ETF as well (the dividends will be lower). The buy/sell premium is an extra expense of owning it in the form of an ETF instead of as a mutual fund account.
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That's not how that works.
It is ;)
"but they have 0,15% higher annual cost per year."
if the ETF has .10 and the Fund has 0.25, then its: spread/(0.25-0.1)
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That's not how that works.
It is ;)
"but they have 0,15% higher annual cost per year."
if the ETF has .10 and the Fund has 0.25, then its: spread/(0.25-0.1)
Sorry, didn't understand what you meant. Thought you were saying there wasn't an ER for the ETF. I couldn't read the Norwegian to help with that.