When I first decided that these super-popularmight have a place in my portfolio, I spent about six months learning about them and then another six months in them to determine how I wanted to use them in my portfolio.
I'm definitely not alone in looking into them. Thousands of Americans have asked themselves the same question I did, and many others are considering their answers right now.
But the reality is that it can be a little overwhelming to decide on your final answer. After all, your decision couldmoving away from an that's been the cornerstone of your portfolio -- as well as the portfolios of millions of other Americans -- for years.
So what's this burning question?
Mutual Funds Or?
There are many different things to consider, such as tax treatment, costs and legal structure. Looking back at what I have learned, I have decided it comes down to threeyou should consider when deciding which one is right for you.
Let's look at each of these...
1. The Purpose Of Your
First, understand the purpose of your market play? Are you looking to just get in and get out? Is it a temporary allocation that you might want to adjust within the next or two?. Is it a long-term core holding that you are not going to be trading out of? Is it a
How you answer these questions is crucial. And if you haven't answered them yet, then you should do so, before you move on.
2. How You Plan To Buy The
This one is crucial as well. Are you using a lump sum to get in the market, or are youon a regular monthly ?
After you know what the purpose is and how you are going to buy, then you can begin to narrow in on a decision.
First thing to consider is liquidity in an as you would in a mutual fund. Since an ETF is traded like a , you need to have someone on the other side to buy, thus when the market is down, it could be hard to find a buyer. Meanwhile, a mutual fund typically have the cash on hand to buy your .. If you are in a area such as an individual country , you might not have as much
Costs can destroy your return; evaluate every possibility. When looking at your twooptions, two fees come into play: transaction fees to purchase and management fees. Using the information that you determined on your purpose and how you are going to buy, come up with an estimated cost per each type of transaction.
For example: An ETF sales transaction fee of another $7.95. Meanwhile, your mutual fund might have no transaction fee and a management fee of 1.25%.have a transaction fee to buy the shares plus a management fee. This might look like $7.95 per trade plus .06% per year and a
Don't forget fees for reinvesting dividends and mutual fund loads. Both of these money if you need to pay to reinvest the dividends or get hit with a sales fee. (The fee for reinvesting is different for every brokerage company, so ask.) Tally all the costs for each approach and select the cheapest long-term .
For example, if you are going to use a lump sum of money to add to your core holdings that you keep for at least 10 years, an ETF allow you to pay one fee to get in with a much lower yearly management fee. That makes your costs less than a mutual fund's fees, which would have no upfront transaction fees but would come with a higher management rate over the long .
However, if you prefer to have your dividends automatically reinvested and your brokerage won't reinvest for free, then you might want to go with the index mutual fund that automatically and for free reinvest the dividends.
TheAnswer: One final thought: I use the dividends from my ETF products to rebalance my portfolio; that way, I avoid automatic transaction fees. If I have to buy and sell to balance my portfolio, I transact two fees. However, if I use my dividends to change my allocations, I avoid the sales fee and just pay to buy.
- Create a retirement savings goal
- Design an investment plan to reach it.
- Get a professional money manager to continually monitor and rebalance your portfolio
Sound complicated? Don't stress. Vanguard's new robo advisor service can help you put all of this (and more!) on autopilot, all for an annual gross advisory fee of just 0.20%.