Let's talk about ETFs

[mtgordon]

I'm about to stick my money in the market and my biggest question is about ETFs. However, I haven't seen a good discussion on them so I'll attempt to start one.

Here is what I believe to be good about ETFs: lower ERs, more tax efficient (assuming you hold them for a long time), and you don’t need to meet a fund minimum. On the other hand Index Funds: do not have commission charges, a bid-ask spread, and not all Index Funds have ETFs. Another note is that if you rebalance your portfolio with ETFs you suffer the commission charges and bid-ask spread every time you move money around.

So the question is which one is the best for an individual investor? I can obviously give my scenario if someone would like to give me advice, but I figured that a discussion in general would be more beneficial to everyone.


Disclaimer: I am by no means a financial guru let alone an ETF specialist. These are just my findings from the past month or so of (very) light research.

[gull]

Short answer: ETFs.

[ilikeaces86_]

You don't suffer any commission charges if you buy and sell ETFs at www.zecco.com

[latefordinner]

if you are going to invest in ETFs why are you going to be moving your money around a bunch?

[crunny]

If you make regular payments, ETFs would be a worse option than index funds, right?

[mtgordon]

crunny: I believe you are correct, but this might just have to do with the commission. If you use something like www.zecco.com then this might not be such a bad thing.

latefordinner: I was talking about moving money around in terms of balancing your portfolio. Again, I know very little about this but was under the impression that this was doing approximately once a year. While I wouldn't call this a lot, it is certainly something that needs to be considered.

[mtgordon]

I kind of found out a bit more information about ETFs. Basically I posted on the Diehard forum and they seemed to imply that ETFs sometimes pay dividends. This would make them less tax efficient than I previously thought.

[maxtower]

You are taxed on dividends from mutual funds the same way.