ETF vs Mutual fund

[emanon1501]

I have an account with Sharebuilder. I want to put some of my money in ETF or Mutual funds. I am not sure which one I should get, and if it should be ETF or Mutual. Any help would be appreciated.

[disneysteve]

I wouldn't do either. If I'm not mistaken, Sharebuilder is going to charge you a commission every time you purchase shares of an ETF or mutual fund. You can avoid that by investing directly with the fund companies. If you want to be able to choose from many different funds and ETFs, consider moving your account to Schwab as they have no-load mutual funds and commission-free ETFs with hundreds to choose from.

[dczech09]

There is a big shift going on in the brokerage industry. A lot of big names are beginning to offer commission free ETF trades. You could go with Fidelty, Schwab (as DS mentioned), TD Ameritrade, and think a few others. Pretty soon commission free ETFs will be the norm.

The Sharebuilder offered by ING is a cool concept but I think is too expensive.

As for mutual funds, I would never buy mutual funds through a brokerage account that was not sheltered. To clarify, I would never buy mutual funds outside of a 401k, IRA, Roth IRA, SIMPLE, etc. The reason is because you have absolutely no control over the trades that the manager makes; the trades will have a direct impact on your tax liability. Tax shelters will defer or eliminate these issues, depending on the account.

[emanon1501]

I got one free trade from Sharebuilder because of my birthday. I want to use that to buy ETF, but which one?

I will look into about switching to a different company in the future, but I used Sharebuilder for the last 4 years, and I got good amount of money tied into them for now.

[emanon1501]

Mutual fund is out, thanks for explaing about no control over it.

[disneysteve]

I would never buy mutual funds outside of a 401k, IRA, Roth IRA, SIMPLE, etc. The reason is because you have absolutely no control over the trades that the manager makes; the trades will have a direct impact on your tax liability.

I disagree. It really depends on the particular fund you are considering. Some funds are very tax-efficient. Others are not. Index funds, by their very nature, have very low turnover and, consequently, low tax exposure. Actively managed and more speculative funds may have very high turnover and generate high taxable gains each year.

[dczech09]

There are differences between mutual funds, ETFs, and index funds. When I refer to mutual funds, I refer to the actively managed ones of course. Index funds and ETFs are good bets for taxable accounts, but mutual funds generally have a lack of control for the investor. No matter how tax-efficient some funds are, it does not change the fact that the investor has virtually no control over the trades. They're at the mercy of the manager; of course in a free market system investors would leave funds that are not tax-efficient, thus the manager does have a stake too.

This is stuff that is taught to anyone who takes the Series 6 or 7; of course financial advisors would never be this truthful when selling a mutual fund

[disneysteve]

When I refer to mutual funds, I refer to the actively managed ones of course. Index funds and ETFs are good bets for taxable accounts, but mutual funds generally have a lack of control for the investor. No matter how tax-efficient some funds are, it does not change the fact that the investor has virtually no control over the trades.

Gotcha. I think when most of us say "mutual fund" we are including index funds under that title, since they are among the most popular type of mutual fund. But you are certainly correct that with mutual funds, index or otherwise, the investor lacks the control he gets with ETFs.

[jpg7n16]

Gotcha. I think when most of us say "mutual fund" we are including index funds under that title

Agreed. I've been known to use 'mutual fund' as an umbrella term for any professionally managed fund. Cause people know what you're talking about. More people understand the concept of a mutual fund.

Then which type of mutual fund? Standard, ETF, Index, Open/closed?