ETF vs. Mutual Fund

**disneysteve** · 09-10-2009, 06:32 AM

I think ETFs and MFs serve different purposes. If you are investing a lump sum for an extended period, an ETF is probably better. If you are investing small amounts over time, such as dollar-cost-averaging, a MF is better because every time you buy shares of an ETF, you pay a sales commission but there is no commission with a MF.

**Broken Arrow** · 09-10-2009, 07:49 AM

Personally, I just run it through any of the major portals, such as finance.yahoo.com or finance.google.com. You enter the first ticker. Once you get the chart, there should be a box where you can enter the second ticker to compare. So long as there is a ticker or some kind, it will work.

That is, assuming you are looking to compare the historical performances of those two funds.

Generally speaking, as Steve mentioned, the choice between classic MFs versus ETFs is one over your contribution style, as well as over some details such as minimum balance requirements and trading costs.

Anyway, here's SLASX and VIG over a 2 year stretch:

**Russell** · 09-15-2009, 08:56 AM

What you guys are saying is how most people describe the difference but where I disagree is that with an ETF you're doing exactly what the market's doing. So if the market's up you're up too and if the market's down you're down. Here's my point/question: is your money really growing over a period of say 10 or 20 years if you're just following the market? If you look at the Dow Jones chart you'll see that in March 1999 it was about where it is today. So if you invested the money say in 1990 and you just followed the market as-is until today you're exactly where you were almost 20 years ago. Now had you sold/rebalanced in '99 and reinvested in 2003 and sold/rebalanced again and reinvested again in various types of investments/companies since then your returns could've been much better than the market. So unless you're willing to do this yourself and have the skills to rebalance and buy the right companies etc at the right time then ETFs make sense.

For this reason for long term investment my preference has recently changed to the target based retirement funds where the asset allocation etc gets rebalanced over time automatically and hopefully the fund managers managing these accounts are more savvy than I am. Sure they don't have a crystal ball but they have access to more tools, analysts and time than I can devote to actively managing my portfolio.

**Broken Arrow** · 09-15-2009, 11:55 AM

Originally posted by Russell View Post

Here's my point/question: is your money really growing over a period of say 10 or 20 years if you're just following the market? If you look at the Dow Jones chart you'll see that in March 1999 it was about where it is today. So if you invested the money say in 1990 and you just followed the market as-is until today you're exactly where you were almost 20 years ago.

What you are bringing up here is a very, very good question, and it's actually a very difficult issue to address.... And there are several points to consider in this issue.

For one thing, I am not sure if it's fair to only look at the past decade. Certainly, between the current recession and the dot com bubble burst, the stock market has certainly seen better days. And I know a lot of people hold decades like this up as examples as to why the stock market is somehow flawed.

Well, the stock market isn't dead, but it certainly can be quite volatile. Please understand that such a swing that we are experiencing is really quite rare. Some say this is likely a once-in-a-lifetime event, though we're never for sure until it's already too late eh? But as much as it could fall, it could also swing back just as much, if not more so.

If you look at it more along the lines of the entire history of the stock market, it really is a remarkable story. The companies upon which the stock market is based on have a voracious, fundamental drive to expand and grow. This isn't something that we can easily find and realize with other types of investments.

Last but not least, many index funds and ETFs will also generate dividend income. It may not be much (I think VTSMX is something like 1% so far this year), but it's there. Interest compounded, I think it does change the equation somewhat....

So, my point is simply that we mustn't avoid the stock market just because it's performing badly, just as we mustn't run into it blindly when it is performing well.

That said, because we also can not predict the future outcome of the stock market (or any other markets for that matter), this is indeed the reason why we must have an asset allocation strategy. Don't put all of our eggs in one basket, and rebalance when appropriate. And all things considered, automated funds like Target Retirement is often a great choice to consider, especially for passive investors.

So yeah, I agree with you, although I think this issue is tougher than it may seem. I've already seen many well-informed debates over this, and ultimately come no closer to a satisfactory answer except to simply stick with something along the lines of what a Target Retirement type fund can offer.

In the end, proper asset allocation and rebalancing is the key....

**Russell** · 09-15-2009, 12:30 PM

BA, that's what I was trying to say i.e. ETF vs. Mutual Fund - not so much stock market vs. something else. Also, to me the last 2 decades are significant because it represents the timeframe that I started saving and in a way (almost) my entire professional career.

For my long term retirement I've been moving my money to the target based retirement funds within Fidelity and Vanguard - even though I hate putting all eggs in one basket I know that the asset allocation within the target retirement funds are adjusted overtime from aggressive/risky to lowrisk. I also have a few dividend payings stocks in my IRA which do help some growing the investment or reducing the losses. For my short term goals I buy whatever I think will give me a quick return and for that ETFs can work out great sometimes.

I don't frequent here as much as I used to back in the day but JimOhio and Sweeps were usually pretty good sounding boards.

**Broken Arrow** · 09-15-2009, 12:39 PM

Yeah, I wonder what happened to the other guys?

Anyways, putting everything into Target Retirement isn't putting all the eggs in one basket. Rather, it will be like having an automated sorting machine to spread your eggs out for you into a dozen or two baskets, rather than you doing it by hand.

ETF vs. Mutual Fund