Investing in the stock market

[noppenbd]

I use ETFs in my SIMPLE IRA. My employer has it set up at Schwab (I cannot transfer it to another brokerage). Since I prefer Vanguard funds, it is cheaper to buy ETFs, paying the $12 commission, than to buy the mutual fund and pay the $49.95 sales charge.

Also, some Vanguard mutual funds have purchase and redemption fees (above the sales charge). VEIEX (Emerging Markets Index) charges a 0.25% purchase fee, and a 0.25% redemption fee. The ETF version (VWO) charges neither. Likewise, VGSIX (REIT fund) charges a 1% redemption fee, and VNQ doesn't.

So there are definitely situations where ETFs can have a significant advantage. Plus you can even avoid the commissions by using a discount brokerage like Zecco (10 free trades a month with more than $2500 in your account).

[tripods68]

There are some intricacy in ETFs i like and dislike. Other than ETF has the lowest expense ratio than similar conventional index mutual funds, dollar-cost averaging makes in impractical due to commission when buy/sell trade. ETFs are most practical for deploying large amounts of capital. Dividends on ETFs are not automatically reinvested since its sells in whole share lots and not fractional like conventional mutual funds.

If you do buy index mutual funds, buy ONLY NO-LOAD funds.

[MaxPowers]

Plus you can even avoid the commissions by using a discount brokerage like Zecco (10 free trades a month with more than $2500 in your account).

My thoughts exactly. I am using Zecco and it is going great so far. I just started but I see myself extablishing a decent portfolio, then contribuiting to each fund once a month. I should still have trades left over to play.

[noppenbd]

Dividends on ETFs are not automatically reinvested since its sells in whole share lots and not fractional like conventional mutual funds.

This is not necessarily true. Both Schwab and USAA brokerage will reinvest ETF dividends (commission free). It happens at the end of the trading day, just like with a mutual fund.

[tripods68]

This is not necessarily true. Both Schwab and USAA brokerage will reinvest ETF dividends (commission free). It happens at the end of the trading day, just like with a mutual fund.

I don't think thats entirely true. How do they reconciled the dividends on ETFs sells in whole lots and not fractional? I can't think off way dealing with the fractional shares on ETFs without going to cash account. Also, reinvesting the dividends is trigger by the actual account holder literally placing or executing the buy of additional shares at a market price/or limit order.

[noppenbd]

I don't think thats entirely true. How do they reconciled the dividends on ETFs sells in whole lots and not fractional? I can't think off way dealing with the fractional shares on ETFs without going to cash account. Also, reinvesting the dividends is trigger by the actual account holder literally placing or executing the buy of additional shares at a market price/or limit order.

I don't want to get totally off topic but Schwab & USAA will definitely reinvest ETF dividends, if you select that option when you buy the ETF initially. The transaction does work out as fractional shares, and is done automatically without the account owner having to do anything (other than selecting reinvest dividends at the initial purchase). When you sell all your whole shares the remaining fractional shares are automatically liquidated at the end of the trading day. I have 2 bond ETFs (IPE and WIP) in my SIMPLE IRA and they reinvest dividends every month.