Author Topic: ETFs or Index Funds - Investment Advise  (Read 7372 times)

sb_NoVA

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ETFs or Index Funds - Investment Advise
« on: November 13, 2014, 09:31:38 AM »
My 401k is with Schwab.  Within that, I have access to PCRA - I can trade stocks, ETFs (Schwab ETFs are commission free), and variety of index and mutual funds.  Which one of these is a better option:

Option 1:
SWTSX with ER of .09

Option 2:
ETF SCHB with ER of .04

ETF has better ER, but I'm concerned about buy-sell spread.  Moreover, as dividends are reinvested, they are always reinvested at 'buy' price.  I don't know what is the long term impact of holding ETFs.  Just looking at face-value, expense ratios on ETFs look way better than expense ratios on Schwab funds.  How can I compare the two and make sound judgement. 

seattlecyclone

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Re: ETFs or Index Funds - Investment Advise
« Reply #1 on: November 13, 2014, 01:47:36 PM »
The answer is that they're both great options. You're right that the bid/ask spread does negate some of the benefit of the lower expense ratio. My gut feeling says that the ETF's expense ratio is better enough that it's still a better buy, but we're talking a potential difference of tens of dollars per year on a $100k portfolio.

Bbqmustache

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Re: ETFs or Index Funds - Investment Advise
« Reply #2 on: November 14, 2014, 01:51:30 AM »
But don't be tempted to begin to actively trade if you go the ETF route.
 Dollar cost average your investments, and buy and hold. 
Don't try and trade yourself to wealth unless you have one of the investment houses' super computers in your closet that will analyze a gazillion variables in a millisecond.

wtjbatman

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Re: ETFs or Index Funds - Investment Advise
« Reply #3 on: November 14, 2014, 06:23:44 AM »
But don't be tempted to begin to actively trade if you go the ETF route.
 Dollar cost average your investments, and buy and hold. 
Don't try and trade yourself to wealth unless you have one of the investment houses' super computers in your closet that will analyze a gazillion variables in a millisecond.

QFT. I bought a second-hand super computer and it turns out it only does a bajillion operations in a millisecond. I got hosed on hog futures and ETF trading.

Bbqmustache

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Re: ETFs or Index Funds - Investment Advise
« Reply #4 on: November 15, 2014, 05:39:24 AM »
I have bought whole hogs, cut, wrapped and frozen for my family.  And we ordered them in advance.  They are the only hog futures I've ever invested in.

wtjbatman

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Re: ETFs or Index Funds - Investment Advise
« Reply #5 on: November 15, 2014, 06:27:00 AM »
I have bought whole hogs, cut, wrapped and frozen for my family.  And we ordered them in advance.  They are the only hog futures I've ever invested in.

Now I know why your name is Bbqmustache.

Bbqmustache

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Re: ETFs or Index Funds - Investment Advise
« Reply #6 on: November 16, 2014, 04:15:18 AM »
We own a Weber Smokey Mountain cooker that I love!  I buy chunks of wood (8lbs at a time) from a guy on Ebay.  Apple, Cherry, Oak, Maple and Hickory currently in stock.  I buy Kingsford charcoal from Home Depot when they have a super sale on double bags (Memorial Day Weekend and Labor Day weekend).  At last count, I am down to 11 bags left.  With the Smokey Mountain, I have even learned how to cold smoke cheese!

wtjbatman

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Re: ETFs or Index Funds - Investment Advise
« Reply #7 on: November 16, 2014, 10:28:06 AM »
I know whose house I'm going to hang out at next summer.

Rezdent

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Re: ETFs or Index Funds - Investment Advise
« Reply #8 on: November 16, 2014, 12:53:51 PM »
I'd lean towards option 1 - but will let more experienced investors chime in as this isn't an area I have much experience.

wtjbatman:  Don't go in summer.  Pigs can be Q'd anytime.  Smoking cheese requires cool weather otherwise it just melts to the smoker and makes a big mess.  Best time to hit him up Bbqmustache is anytime but summer. (This IS an area where I have experience.  Last weekend we smoked cheddar and our hog futures currently hinge on an expectant sow named Hillary)

RyeWhiskey

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Re: ETFs or Index Funds - Investment Advise
« Reply #9 on: November 16, 2014, 02:46:23 PM »
Excellent question!

The only answer which I've come up with of real value is that ETFs subconsciously encourage trading, whereas mutual funds do not. Given that they are both the same fund and there's no difference in underlying assets, the argument of bid/ask spread vs. higher ER is of minimal importance given that the ETFs are usually only slightly cheaper.

So if you feel like you're the kind of person who will be checking the news, worrying about losses, and tempted to trade, definitely go with the mutual fund.

Bbqmustache

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Re: ETFs or Index Funds - Investment Advise
« Reply #10 on: November 17, 2014, 05:50:40 AM »
Well, back to the investment side of things, sorry for the digression.

Here you go, a Schwab S&P 500 Index mutual fund, minimum initial investment of only $100.00 and net expense ratio of .09%!

Schwab® S&P 500 Index Fund SWPPX

If I could, I surely would.

Bbqmustache

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Re: ETFs or Index Funds - Investment Advise
« Reply #11 on: November 17, 2014, 07:10:44 AM »
Sorry again, back to smoking.  My favorite smoke wood supplier is on ebay again!

Here's his apple wood chunks, an 8 pound box! http://www.ebay.com/itm/8-Pounds-of-Apple-Wood-Chunks-for-Smoking-or-Grilling-/261058294459?pt=LH_DefaultDomain_0&hash=item3cc84972bb

pbkmaine

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Re: ETFs or Index Funds - Investment Advise
« Reply #12 on: November 17, 2014, 07:15:30 AM »
What are the trading costs on the ETFs, and how often will you be buying? In general ( but not always), ETFs work better for big infrequent deposits and mutual funds work better for smaller frequent ones.

Scandium

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Re: ETFs or Index Funds - Investment Advise
« Reply #13 on: November 17, 2014, 01:54:58 PM »
Excellent question!

The only answer which I've come up with of real value is that ETFs subconsciously encourage trading, whereas mutual funds do not. Given that they are both the same fund and there's no difference in underlying assets, the argument of bid/ask spread vs. higher ER is of minimal importance given that the ETFs are usually only slightly cheaper.

So if you feel like you're the kind of person who will be checking the news, worrying about losses, and tempted to trade, definitely go with the mutual fund.
SWTSX and SCHB are not the same fund. One is total market the ETF is broad market. I'd have to look it up but they follow two slightly different indexes. There are more stocks in SWTSX.
 
Does it matter? Maybe/I have no idea/probably not. I own both. Did some larger lump sums into SCHB but have monthly contributions to SWTSX. Personally I think I'd stick with the mutual fund if it was my 401k. For simplicity, and the ER difference is tiny. 

sb_NoVA

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Re: ETFs or Index Funds - Investment Advise
« Reply #14 on: November 18, 2014, 03:56:26 PM »
What are the trading costs on the ETFs, and how often will you be buying? In general ( but not always), ETFs work better for big infrequent deposits and mutual funds work better for smaller frequent ones.

Trading costs are $0, Schwab comission free ETFs.  I buy every 2 weeks (paycheck) in 401k.  Also, dividends are reinvested.