What to do now?

[mtgordon]

Background (can be skipped):
So I realized that I need to get my money into the market. I read up a bit on index funds mostly at fundadvice.com. I thought I had figured out how to use that information to get into the market. I posted on 2+2 and on the Vanguard Diehards forum. I got some responses, did a bit more research (but not a ton) and changed things a bit. I looked into ETFs and thought I understood them. I posted what I thought was the last time on both 2+2 and Diehards. The responses lead me to believe that things are much more complicated than I had originally thought. I don’t know the tax ramifications of what I’m trying to do, I don’t 100% understand what various funds are, etc.

Previous Posts
Most Recent Diehard Post
Most Recent 2+2 Post
I'm certainly willing to answer any/all questions pertaining to my situation but I think most of it is in those two links and I didn't want my post to be too long.

Question:
I feel like it’s time to give up. I don’t want to be a lazy investor, but I have other time commitments. I’m looking for advice on how to proceed:

[turnipmonster]

I had a very similar situation as you last year and did lots of reading, etc. I currently am invested in VMMXX (prime money market), VGTSX (international index) and VTSMX (US total stock market index).

I'm not really sure why you want to mess around with ETFs, particularly if you're just a passive investor. just put your money in a few index funds and a money market (weighted according to your risk tolerance) and leave it there. for more background on this strategy, read "a random walk down wall st".

[mtgordon]

The reason that I started looking into ETFs was because of gull's post toward the end of this thread. Then I believed that ETFs were better for non-tax sheltered accounts because I was under the belief that they were like stocks and you would just pay taxes when you sold. However, in the Diehard thread posted in my original post they implied that ETFs have the equivalent to dividends that I would be taxed on. Also you can look at this thread on ETFs where some advantages were posted.

[turnipmonster]

that's a good post by gull, makes a lot of sense. since commissions are a factor I guess it really depends on how often you'll be contributing (i.e. do you want to dollar cost average your 85k, etc).

however, certainly whatever difference there is between ETFs and straight index funds is not worth keeping your money out of the market over. there's really no harm in buying into a few index funds, and rolling your money elsewhere as you learn more about ETFs, etc. that's my plan anyways.

[CHAx]

ETFs can be a very good way to get exposure to the market very inexpensively. The advantages are diversification, tax simplification, and liquidity. However, an issue with many ETFs is that they are weighted per their indices. This inheritably means you are buying the stocks more and more when they are at their highs. Try to find ETFs that are *not* cap weighted to their corresponding Index. You have to understand that ETFs are biased to large cap stocks.


As an advisor myself I think you would do well to ask a professional. You admit to feeling overwhelmed and I think you would do well to seek advice. Trust me when I say you are much more knowledgeable than the average prospect I talk to. Do not feel embarrassed to ask a lot of questions, often they will need to look up the answer themselves (I often have to research questions). Ask questions about fees and services. Also, I recommend avoiding any advisor that pushes only one type of investment option ("I only do mutual funds" is not a good sign).

[CHAx]

QQQQ VS QQEW is just one example of cap weighting in NASDAQ ETFs.

A link that helps answer questions:

http://www.financialsense.com/editor...2006/0428.html

[mtgordon]

Thanks for the responses.

CHAx: Just to make sure I understand you, when I look at an ETF like VB, it says that it's a small-blend index. I assume this would be an example of what you would consider a good ETF because it is not large cap weighted. Is that what you are referring to or am I completely off the mark?

PS: I'll look over the website you posted tonight.

[jively]

Your allocation in the 2nd post was pretty good. I liked my response (the first response in the thread). So, go for it.

ETFs and index funds are so close, it really doesn't make that big of a difference. Gull's post was good regarding fees, except he didn't really mention that the bid/ask spread on some ETFs can be a bit higher. I prefer funds to ETFs, especially because I am a DFA advisor, and DFA's funds are not available as ETFs.

As long as you keep your allocation for a number of years, and don't tinker with it, and only rebalance annually (or less frequently), you'll do great. If you think you can't stick with the same allocation through the downs and the ups, you could hire an advisor, but the search for one who recommends passive investments only without making forecasts may be tough.

Good luck,

-Tom

[gull]

Jively is correct. The differences between ETFs and funds are very minor. They will only determine a tiny, tiny amount of overall performance. Don't sweat the minutae.

A fourth option not in the poll would be to put all the money in a relatively low-fee target retirement or total stock market fund. This would require no work, no decisions, and would still yield a very good risk-adjusted return.