ETF funds

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ETF funds

Postby Yoree » Sun May 13, 2007 10:56 am

Are there any downsides to having your portfolio primarily in ETFs?
I think I'm ready to dump my mutual funds and start investing in ETFs.

There's a lot of good things about ETFs (lower MER, easier to trade, no fees, etc.).

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Postby FinancialJungleGuy » Sun May 13, 2007 11:55 pm

I don't see too many downsides, except in bubbly environments. I'm not an efficient market theory proponent, so my belief is that short-term market movements are mostly influenced by greed and fears.

Most mutual funds under perform the indices, so if you don't have the inclination or time to study the managers, ETFs are the way to go.

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Postby MossySF » Mon May 14, 2007 1:13 am

The only real issue to watch for is bid-ask spreads in low volume ETFs. You may end up paying a premium for your shares. This happened to me just a few days ago. Price was 19.83 for the entire day but my market buy order went through at 19.92. Over the long run, it's not a big deal.

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Postby Dylan » Mon May 14, 2007 6:32 am

Another issue with buying and selling ETFs is that their prices can change throughout the day independently of the actual value of the stocks in the fund, unlike mutual funds that are priced following the close of each trading day. So you may actually end up purchasing an ETF above or below the actual value of the fund. Similar to the spread issue that MosseySF mentioned, it becomes less of an issue the longer you hold the ETF.

Commissions are usually the largest obstacle to overcome in using ETFs. If you can maintain your portfolio with low or no commissions, traditional index ETFs are a great way to invest. It may be worth looking at FOLIOfn as a way to maintain an all ETF portfolio. They charge a flat annual fee, trades are done in two daily windows, your price is the mid-point between the bid and ask, you can specify percentage weightings instead of number of shares or dollar amounts, and you can buy and sell fractional shares. Investing, rebalancing, cost-basis management, and withdrawals are all done with a couple of mouse clicks. Depending on the number of ETFs, frequency of contributions and the size of your account, they may be a very cost effective and convenient solution for ETF investing. I use them and have been very happy.

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