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Getting Started with ETFs

Discussion in 'Finance and Investment' started by zinjanthropus, Jun 14, 2008.

  1. zinjanthropus

    zinjanthropus Physician Faculty 10+ Year Member

    May 31, 2003
    Hi Everyone:

    My wife and I both take advantage of our 401(b) plans at work and make contributions to a Roth IRA. We do not max out either of these and instead just mix and match a little. I know it would be a great idea to max out on these plans before moving to equities but they just aren't "fun" and I'm looking to have at least a little fun with money. So, I would like to get into ETFs and was specifically thinking of doing an automatic monthly investment into something like Vanguard's S&P 500 fund through ING. However, I believe that they hit you with a $4 fee each month, right? Is there a better way to go about this or just a much better idea in general? Thanks.
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  3. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD Physician Partner Organization 10+ Year Member

    Nov 18, 2002
    SDN Partner
    Don't be a dumbass. Investing isn't supposed to be fun. Good investing is boring investing. Find your fun elsewhere. $300 in Vegas is a lot more fun than $50000 in the stock market. Do you really enjoy your work enough to piss away your earnings? Those who look for action in investing are those who are robbed blind by wall street.

    For someone making regular, small contributions, you're better off in regular old mutual funds, such as Vanguard's Target Retirement Funds. It has everything you need for one low price. It's like Prego spaghetti sauce:

    "You want S&P 500? It's in there. You want bonds? It's in there. Japanese stocks? It's in there. Oil stocks? It's in there"

    And go directly to, not ING, and not only will you not pay commissions or additional account fees, but you'll also avoid bid:ask spreads. If you don't know what those are you have no business investing in ETFs. Consider reading Rick Ferri's excellent "All About ETFs" The truth of the matter is that figuring out how to max out your Roth IRAs will do more for your financial independence (and future fun) than "getting into ETFs."
    Last edited: Jun 15, 2008
  4. mgdsh

    mgdsh 10+ Year Member

    Mar 15, 2007
    Wow. Having a bad day?

    Look, ETFs have their own purposes and there are more than one way to invest other than just putting all your money in mutual funds.

    ETFs are becoming more and more popular as they do have some advantages over mutual funds. Most mutual funds settle at the end of the day and as a result you end up with the prices at the end of the day.

    ETFs also offer diversity. Say you wanted to diversify in the markets, but stay the hell away from the financials, you could do that by picking up some ultra liquid ETFs like the XLE, XLI, XLB, XLK, XLY, XLP, etc. You could also overweight and underweight among sectors like that.

    Also, a lot of ETFs have lower expense ratios than most mutual funds.

    In addition, you have access to commodities like Oil (USO), Natural Gas (UNG), Gold (GLD), Silver (SLV), etc

    I'm just scratching the surface here...

    The ETF trend is going to continue.

    There are plenty of ways to make money in the markets. No need to call someone a 'dumbass' because his/her strategy doesn't agree with yours.
  5. Soundwave

    Soundwave Decepticon 2+ Year Member

    Aug 26, 2007
    etf's don't lend themselves well to dollar-cost averaging because of the fees needed with each transaction. If you had a lump sum, you could invest in an etf.
  6. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD Physician Partner Organization 10+ Year Member

    Nov 18, 2002
    SDN Partner
    The dumbass idea is more of brotherly "Are you kidding me?" not so much an insult of the OPs brainpower. None of us is born knowing much about personal finance. His idea of what successful investing must be like, although wrong, is extremely common and actually quite intuitive. I was giving him a nice wallop upside the head that may save him thousands of dollars in the future. Dumbass was probably a little harsh. Shame on me.

    BTW, how do you get MORE diversity by excluding part of the market?

    As far as ETFs go, here is a nice piece by Bogle on them (sorry about the formatting):

    ETFs. Exchange traded funds are clearly the most widely accepted innovation of this era. Of
    course I admire their endorsement of the index fund concept—and (more often than not) their low costs.
    And how could I not admire the use of broad-market index ETFs that are held for the long term, and even
    broad-market-segment ETFs that are used in limited amounts to accomplish specific goals? But I have
    serious questions about the negative impact of brokerage commissions when ETFs are rapidly-traded.
    Further, I wonder why there are only 15 ETFs broadly-diversified in stocks and bonds; but 675 in market
    sectors that range from the reasonable to the absurd. In this latter category I'd include sectors as narrow
    as "Emerging Cancer," and leveraged funds that now promise to double the market's returns in either up
    or down markets. Not to be outdone, a few ETFs now offer the opportunity to triple those swings. Could
    quadruple be next? Put another way, ETFs used for investment are perfectly sound, but using them for
    speculation is apt to end badly for your clients.

    Now the OP has just a few bucks to invest and brokerage fees, commissions, and bid:ask spreads would eat up way too much of his return, thus at this stage of life it would be better for him to be in a traditional mutual fund. Fair enough? Also, as the OP doesn't actually seem to realize he IS invested in equities already (that's what his 401K and Roth IRA holdings likely consist of) and he seems to think that buying individual stocks (what he means by equities) would be more fun, I think he needed a good-natured whup upside the head. In his defense, at least he is looking at a broad market ETF like the S&P 500, but ETFs are ****ty for monthly periodic investing due to having to pay transaction costs 12 times. That more than makes up for the lower ER.

    Besides, the OP is an EM resident. He has very thick skin I'm sure. If he doesn't have it yet, he will soon.

    P.S. Actually, now that I think about it I was having a bad day when I wrote that, so apologies to all. I'd edit it, but it's already been quoted so what's the point.
    Last edited: Jun 24, 2008
  7. etf

    etf Moderator Emeritus 10+ Year Member

    Apr 27, 2005
    i use these eponymous securities sparingly. the only etfs i hold are vti and veu, and i usually lump sum in and pay no commission. but for the most part open-end mutual funds are better anyway.
  8. zinjanthropus

    zinjanthropus Physician Faculty 10+ Year Member

    May 31, 2003
    it's all good. Sounded a little more rough than I expected but no biggie.

    Certainly I have figured out that dollar cost averaging for ETFs makes no sense because you get hit with broker fees each time.

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