Mutual Funds vs ETF's?

[prof.susan]

I have 7k invested in a mutual fund, GTSIX, and I was wondering if anyone knows of an ETF that is similar risk and might get a better return (10 yr investment horizon)? I am graduating in may and will most likely have a 50k/yr job by Sep. next year. Hoping to save $400 each month to deposit into my investment. Any ideas/recommendations are much appreciated!

[disneysteve]

What does the rest of your portfolio look like? GTSIX is a small cap growth fund which is not a bad holding as part of your portfolio. It has a 1.27% expense ratio which you can certainly beat. Vanguard's Small Cap Growth ETF has an ER of just 0.10%. So that might not be a bad substitute, but you really need to look at your overall allocation. What percentage of your portfolio is in this fund? Do you have an adequate emergency fund? What percentage are you (or will you be) contributing to your retirement accounts? Do you have any debts?

Just looking to replace this fund is probably ignoring the big picture.

[kellogg9]

I assume you've maxed out your RRSP and TFSA?

[jpg7n16]

I have 7k invested in a mutual fund, GTSIX, and I was wondering if anyone knows of an ETF that is similar risk and might get a better return (10 yr investment horizon)? I am graduating in may and will most likely have a 50k/yr job by Sep. next year. Hoping to save $400 each month to deposit into my investment. Any ideas/recommendations are much appreciated!

In addition to the above questions -- What are you investing for? What's the goal in 10 years?

Is that just a figure you threw out for long term, or is there a specific event in 10 years you need the money for?

[prof.susan]

What does the rest of your portfolio look like? GTSIX is a small cap growth fund which is not a bad holding as part of your portfolio. It has a 1.27% expense ratio which you can certainly beat. Vanguard's Small Cap Growth ETF has an ER of just 0.10%. So that might not be a bad substitute, but you really need to look at your overall allocation. What percentage of your portfolio is in this fund? Do you have an adequate emergency fund? What percentage are you (or will you be) contributing to your retirement accounts? Do you have any debts?

Just looking to replace this fund is probably ignoring the big picture.

In addition to the above questions -- What are you investing for? What's the goal in 10 years?

Is that just a figure you threw out for long term, or is there a specific event in 10 years you need the money for?

Thanks for the input guys!

This is all I have invested so far, not quite a portfolio yet. I am keeping it strictly for retirement (in about 30 yrs) and was hoping to diversify more in 5-10 yrs once I have more money to work with. I have no outstanding debt - plan to keep it that way - and have a little over 2k cash in an emergency savings account.

Should I just keep this fund and wait to diversify more in a yr once I get a full time job? GTSIX has gone up a lot in the past month.

[disneysteve]

This is all I have invested so far

I don't think a small cap growth fund is a good base for your portfolio. If you are only going to have one fund, I'd say it should be broader than that, like a total stock market index fund.

I'd consider switching over to something like that, either in MF or ETF form.

As for further diversifying, you can do that with 7K. Vanguard has a 3K minimum on most of their funds. Another option would be a target date retirement fund which will instantly give even broader diversification in one fund.

[kv968]

Thanks for the input guys!

This is all I have invested so far, not quite a portfolio yet. I am keeping it strictly for retirement (in about 30 yrs) and was hoping to diversify more in 5-10 yrs once I have more money to work with. I have no outstanding debt - plan to keep it that way - and have a little over 2k cash in an emergency savings account.

Should I just keep this fund and wait to diversify more in a yr once I get a full time job? GTSIX has gone up a lot in the past month.

As Steve said, that's not a good fund to have as your only holding and/or core. It's a decent fund, but you don't want to have a small cap fund as your only investment.

Again as Steve said, you might want to just park your money in an appropriate target date fund for the time being and just get the instant diversification.

Is this for a 401k account or an IRA? And if it's an IRA, who is it with?

[jpg7n16]

Thanks for the input guys!

This is all I have invested so far, not quite a portfolio yet. I am keeping it strictly for retirement (in about 30 yrs)

I think you should try out this calculator to get a feel for where small cap equities should be in your account.

Asset Allocation Calculator

Compare your results to what your current portfolio looks like with this:

Instant X-Ray Stock Fund Investment Portfolio Holdings Free Analysis Research Tool - Morningstar

and was hoping to diversify more in 5-10 yrs once I have more money to work with. I have no outstanding debt - plan to keep it that way - and have a little over 2k cash in an emergency savings account.

Don't let having a small dollar amount keep you in a poor allocation. There are always funds that allocate for you.

Asset allocation style, target date funds, balanced funds, etc. can all help you get a proper allocation with a smaller dollar figure.

Should I just keep this fund and wait to diversify more in a yr once I get a full time job?

I think you should always be properly invested.

GTSIX has gone up a lot in the past month.

"For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up."

-Warren Buffett

[prof.susan]

...

^ For some reason?? The reason is that not everyone has 50 hrs a week to study and research the value of companies. Discerning trends in price movement and buying just as the stock starts to go up is not necessarily "the dumbest reason in the world to buy a stock."

For example look at Walmart (WMT). If you bought shares in nov. of 2011 because you saw the stock going up, you would now be up 33 percent in less than a yr.

[disneysteve]

^ For some reason?? The reason is that not everyone has 50 hrs a week to study and research the value of companies. Discerning trends in price movement and buying just as the stock starts to go up is not necessarily "the dumbest reason in the world to buy a stock."

It might not be the dumbest reason but it's definitly high on the list. You need to understand why the price is rising. Does it makes sense? Do the company's financials support the price increase? Or is it purely speculation? Just because the price of a stock is rising doesn't mean it is a good thing to buy.

And you are absolutely right that not everyone has the time, knowledge or desire to do that type of research. That's why we have mutual funds and ETFs. We don't have to research every company. We can make a single investment that gives us instant diversification and either tracks an index or employs professional managers to do that research for us.

If you can't or don't care to do the research, I'd suggest sticking with mutual funds or ETFs. I dabble a tiny bit in individual stocks but the vast majority of our portfolio is in mutual funds for just that reason.

[jpg7n16]

^ For some reason?? The reason is that not everyone has 50 hrs a week to study and research the value of companies. Discerning trends in price movement and buying just as the stock starts to go up is not necessarily "the dumbest reason in the world to buy a stock."

Is that the only part of my post you read?

You don't need to study the market 50 hrs a week to be successful at investing.

For example look at Walmart (WMT). If you bought shares in nov. of 2011 because you saw the stock going up, you would now be up 33 percent in less than a yr.

For example, look at Hewlett-Packard (HPQ). If you bought shares in Nov of 2010 because you saw the stock going up, you would now be down 60 percent in just two years.

What's your point?

We can all cherry pick a stock that was going up, that kept going up. And we can cherry pick one that was going up, that fell.

The point is - price movement should not be THE reason why you buy something.


That's like going to the mall and buying a shirt solely because it's more expensive now than it was in November. That makes no sense for your wardrobe, or for your portfolio.

[WallStreetTrades]

For example look at Walmart (WMT). If you bought shares in nov. of 2011 because you saw the stock going up, you would now be up 33 percent in less than a yr.

This would just be a lucky pick if all you were looking at was the price movement. I believe they went up so much because of their new online store which is trying to compete with AMZN. They don't have to deal with setting up new warehouses so the margins are much better.

[jasonbinary]

Exchange-traded funds (ETFs) were once described as the new kids on the investment block, but today they are giving traditional mutual funds a run for their money. Both ETFs and mutual funds are viable choices for investors. But, with many mutual funds and ETFs available on the market, it's important for investors to familiarize themselves with the differences between products to ensure they are making appropriate investment decisions. While mutual funds and ETFs share similar traits, there are differences between the two that investors must consider when deciding which to use.

[PasadenaFinancialPlanner]

^ For some reason?? The reason is that not everyone has 50 hrs a week to study and research the value of companies. Discerning trends in price movement and buying just as the stock starts to go up is not necessarily "the dumbest reason in the world to buy a stock."

For example look at Walmart (WMT). If you bought shares in nov. of 2011 because you saw the stock going up, you would now be up 33 percent in less than a yr.

This would be an example of 20/20 hindsight. Investing is rife with strategies based upon data mining the history of what actually did happen. However, the only problem is that evidence from the future is not available when making investment decisions. Everyone is staring into the unknown future. There are no investment crystal balls -- all are opaque.

Like you say, "not everyone has 50 hrs a week to study and research the value of companies." In fact, when people are accumulating their assets, they are working long hours. Almost no one has the time. Researching companies takes time away from family, friends, and hobbies that a person might wish to be doing.

Unless you love investment analysis as a hobby more than these other things, then investment research is like a volunteer job that you may not like. Then, the question is whether you are good at it.

Most people are not. Most individual investors under perform a passive strategy that they could have implemented with low cost, broadly diversified index funds and by spending relatively little time. Furthermore, few people who do spend time stock picking ever bother to benchmark their performance against the passive investment fund based alternative. Stock picking by individual investors is far more likely to lead to inferior results with higher risk and less diversified portfolios.

[feh]

You don't need to do a lot of research or buy a bunch of funds to be diversified. I suggest you read this page:

Three-fund portfolio - Bogleheads