Mutual funds

[Mumpu]

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Anyone have a particular preference for a no-load mutual fund/discount brockerage? Any bad experiences? They all sound pretty much the same to me... my old 401(a) is with Fidelity so I'm curious if I should bother going elsewhere or sticking with them.

TIAA-CREF advertises as being for healthcare professionals, amongs other groups. Do they give any special benefits?

 

[teninepit]

Anyone have a particular preference for a no-load mutual fund/discount brockerage? Any bad experiences? They all sound pretty much the same to me... my old 401(a) is with Fidelity so I'm curious if I should bother going elsewhere or sticking with them.

TIAA-CREF advertises as being for healthcare professionals, amongs other groups. Do they give any special benefits?

I would say if Fidelity has worked well for you and the performance has been what you would have expected for the particular investment then generally speaking there is no reason to go somewhere else. Fidelity is known for their "expertise" in the 401(k) rollover market.

That being said, I would look very hard at diversifying your investments by picking several different types or styles of funds. Further, I would avoid Creff like the plague. Their fund performance over the last ten years has been very weak compared to others.

It also sounds like you might need some advice picking out funds. Fidelity might help some (not sure if they do). But you might consider stepping up and hiring a local financial advisor if you have a sizable amount of money or will be making sizable money now or in the near future.

 

[waterski232002]

Anyone have a particular preference for a no-load mutual fund/discount brockerage? Any bad experiences? They all sound pretty much the same to me... my old 401(a) is with Fidelity so I'm curious if I should bother going elsewhere or sticking with them.

TIAA-CREF advertises as being for healthcare professionals, amongs other groups. Do they give any special benefits?

I have an H&R Block account and I HATE IT!!! Do not use them. It costs a fortune to make transaction, and their service is crummy.

I would suggest investing in mutual funds on your own. Janus is excellent. I have been invested in Janus Overseas and Janus Midcap Value Fund and both have done extremely well. It doesn't cost me anything to buy/sell, and I don't go through a broker.

Good luck

 

[APACHE3]

probably stick with Fidelity. Avoid TIAA-Creff like the plague. They have high fees and they over-weight there investments with bonds. hence in 30 years when you want to retire and you find out you were only yielding 4% and you DONT have enough to retire on, they'll say, but did your money go down? My teacher mother had them, and when she retired, I couldn't believe the crap they had her in. doesn't matter what your in, just make sure your getting about 8.5% annually if in mutual funds. invest 15,000 a year (after residency) you'll hit a million in about 20 years. Do it with US treasuries and tax free bonds, yielding about 7.5% annually and you'll hit a million in about 28 years. And dont forget your home, which is usually a safe and worthwhile investment. I love real estate. I mean, as a hospitalist which is bottom in terms of pay, even at 15,000 month pay, take 4K tax, take 2k out for student loans, 2k out for present mortgage, 500-700 for carpayments, 2k for retirement, what is that...leaves 4200 a month for other expenses, food, elec, phone, etc, private school. of course the younger you are, the longer you got and you can add less in the beginning, anyway..stick with fedility.

 

[CameronFrye]

Anyone have a particular preference for a no-load mutual fund/discount brockerage? Any bad experiences? They all sound pretty much the same to me... my old 401(a) is with Fidelity so I'm curious if I should bother going elsewhere or sticking with them.

TIAA-CREF advertises as being for healthcare professionals, amongs other groups. Do they give any special benefits?

As I mentioned in another thread, you should check out one of the "For Dummies" books by Eric Tyson. He breaks down what you should be looking for in a fund company. But to answer your question, I really like Vanguard, but Fidelity is very good too. Since you already have an account with Fidelity, that probably makes the most sense.

 

[Mumpu]

I just finished Orman's book (the one for "Young, Fabulous and Broke"). Good book, a lot of safe reasonable advice. I'll check out the "For Dummies" book for a second opinion on the topic.

Guess I'll stick with Fidelity (appreciate the warning on the TIAA-CREF).

Thanks!

 

[EctopicFetus]

Check out ETFs. Keep in mind that most mutual funds dont beat the S&P and if you take into account their "management fees" like 90% or something dont. Just buy "SPY" or QQQQ which are the S&P and Nasdaq 100 tracking ETFs.

 

[Plastikos]

At my job during college the 401(k) program we used was through Fidelity, and it was awesome. Easy to use site for following/managing funds and good info. I also had a few Janus funds that always did well (minus that whole bubble thing, argh).

 

[NGN47]

Fidelity has several good choices for Index Funds. I would suggest one that tracks the S&P or the Wilshire 5000. If you can find an international equities index I would suggest that too. I think they only charge something around 13 basis points or so in fees for these index funds--not a bad deal. Vanguard has good ones as well, their fees may even be lower.

 

[Mumpu]

As much as I would love to buy into ETFs tracking something like Wilshire 5000, I can't afford the large investments required to beat the buying fees.

Unless I misunderstood something, Fidelity index funds require a minimum $10,000 initial investment which ain't happening for a couple of years.

 

[NGN47]

You are right. I forgot about the initial investment minimum of 10,000.

 

[ThinkFast007]

anyone use scottrade? i use them for regular day trading/stocks. anyone use them mutual funds?

 

[APACHE3]

I know people will say start investing now, but just wait until residency is over and then make up for it with sizeable, automatic deductions to your retirement pan..and I've daid before, study "dollar cost averaging" with your mutual funds and you will always come out ahead if the time frame is right.

 

[Poety]

Apache aren't mutual funds risky?

 

[teninepit]

Apache aren't mutual funds risky?

Really with few exceptions ALL investments offer a measure of risk. Stock mutual funds offer an higher amount of risk being defined as loss of your principal. However, stocks/stock funds offer the best chance to make a higher rate of return.

 

[wook]

I know people will say start investing now, but just wait until residency is over and then make up for it with sizeable, automatic deductions to your retirement pan..and I've daid before, study "dollar cost averaging" with your mutual funds and you will always come out ahead if the time frame is right.

I would suggest looking at opening a Roth IRA (I use a mutual fund investment) while a resident, because once you are an attending, you will no longer be eligible for this investment vehicle (due to salary).


Wook

 

[Methyldopa]

However, stocks/stock funds offer the best chance to make a higher rate of return.

And in the long run stocks beat out any other type of investement (ie CDs, Bonds)

 

[GoPistons]

lowest cost mutual fund option is clearly Vanguard... it also has a great website... fidelit, TIAA-CREF... etc. all suck compared to Vanguard... 3k minimums and no transaction fees...

 

[Mumpu]

Fidelity is $2500 minimum with no transaction fees, $500 minimum if you are using an IRA of any sort. My plan is to ride on those mutual funds until I get the 10K required to switch to a total market index fund. The expense ratios in the Fidelity funds are so-so (0.7-0.9%) but their market index funds are only 0.18% or so.

 

[spyderdoc]

I like Fidelity. I am doing my rollover and SEP-IRA through them, and they have been great. Any place that advertises specifically for doctors(TIAA-Creff), I would be leary. We all tend to be financial ******s, and people are in line just waiting to take advantage of us...I haven't dealt w/ them since I am happy with Fidelity...
Good luck.

 

[ThinkFast007]

.. We all tend to be financial ******s, and people are in line just waiting to take advantage of us...I haven't dealt w/ them since I am happy with Fidelity...
Good luck.

man thats such a good point to mk. never thought of it that way 👍

 

[DOctorJay]

I agree with the above postings regarding Vanguard for an index mutual fund.

Get into a Roth IRA with Vanguard Index and put up to the max each year ($4K right now I think). I also agree with the dollar cost averaging program and would recommend the book "Automatic Millionaire" to anyone who wants to be totally hands off with their money and just let it grow.

-J

 

[Methyldopa]

This is my question: let's say you really only have enough money for either a Roth IRA or a 401(k) which your residency program does NOT match; which do you invest in?

Do you chose the 401(k) because that is tax deductible up front, and will most likely be your avenue of savings when you reach attending level (because you won't be able to contribute to a Roth)?

Or do you contribute to a Roth IRA, which is non deductible but earns tax-free interest?

 

[NGN47]

What are Vanguard's fees on their Index funds? I forget. Another good book on investing is called 'A Random Walk Down Wall Street' by Burton Malkiel.

 

[CameronFrye]

What are Vanguard's fees on their Index funds? I forget. Another good book on investing is called 'A Random Walk Down Wall Street' by Burton Malkiel.

Historically, Vanguard has had the lowest fees/expense ratios on index funds (I don't remember the exact number at this moment). I see where Fidelity has dropped some of their expenses, but you sometimes have to keep an eye on Fidelity. They will sometimes voluntarily cover a portion of a fund's expenses, but then they can stop doing that in the future. When you go online to check out their funds, they disclose this information.

A couple other points:

-It's hard to properly diversify when you are first starting out. If you try to buy multiple funds, your returns can be held down by low balance fees. The perfect solution is a Fund of Funds, which is basically a mutual fund that buys shares in other mutual funds. I especially like Vanguard's LifeStrategy Funds. If you invest in one of these funds, you are simultaneously investing in a Total Stock Market Index Fund, a Total International Stock Index Fund, an actively managed asset allocation fund, and a total bond market index fund. Fidelity also offers Funds of Funds, but they usually tack on a small expense for bundling the individual funds together (Vanguard does not).

-Here are just a few reasons that I use Vanguard as my "home base" for investing: because of their low fees, Vanguard's money market funds are a good place to park your money until you're ready to invest/use it (my loan money is currently sitting in one); Vanguard pioneered index funds and usually have the lowest fees (the primary determinant of an index fund's success); also Vanguard only charges $35 to buy funds from other companies (I believe Fidelity charges $75).

All that being said, Fidelity is certainly a more than satisfactory choice (and once I have more money, I will certainly invest with them). Just be sure you are investing in their no-load funds and keep an eye on expenses.

 

[skypilot]

Index funds are a great idea. I think Vanguard or the other choices including Exchange Traded Funds are too. Make sure you are investing with leftover money, have a cash reserve so you don't have to touch your investments in an emergency, and don't check your balance everyday. (Once per month at most 🙂 It will go up and down over the years, only gradually increasing over every five year period. But gradually compounding will work its magic and after 20 years of investing you will have a lot. You'll be surprised how fast 20 years will go by! 🙂

 

[ambientbaby]

Anyone have a particular preference for a no-load mutual fund/discount brockerage? Any bad experiences? They all sound pretty much the same to me... my old 401(a) is with Fidelity so I'm curious if I should bother going elsewhere or sticking with them.

TIAA-CREF advertises as being for healthcare professionals, amongs other groups. Do they give any special benefits?

Fidelity is nice. Low fees, no fee Roth IRA (deadline is approaching this week). Check out the Freedom Fund 2040. FFFFX It is a good fund that you stick your $$ in and let it ride. Avoid individual stocks unless you have time to spend researching the companies. Avoid ETFs.

Good Luck

 

[Gut Shot]

Historically, Vanguard has had the lowest fees/expense ratios on index funds (I don't remember the exact number at this moment). I see where Fidelity has dropped some of their expenses, but you sometimes have to keep an eye on Fidelity. They will sometimes voluntarily cover a portion of a fund's expenses, but then they can stop doing that in the future. When you go online to check out their funds, they disclose this information.

A couple other points:

-It's hard to properly diversify when you are first starting out. If you try to buy multiple funds, your returns can be held down by low balance fees. The perfect solution is a Fund of Funds, which is basically a mutual fund that buys shares in other mutual funds. I especially like Vanguard's LifeStrategy Funds. If you invest in one of these funds, you are simultaneously investing in a Total Stock Market Index Fund, a Total International Stock Index Fund, an actively managed asset allocation fund, and a total bond market index fund. Fidelity also offers Funds of Funds, but they usually tack on a small expense for bundling the individual funds together (Vanguard does not).

-Here are just a few reasons that I use Vanguard as my "home base" for investing: because of their low fees, Vanguard's money market funds are a good place to park your money until you're ready to invest/use it (my loan money is currently sitting in one); Vanguard pioneered index funds and usually have the lowest fees (the primary determinant of an index fund's success); also Vanguard only charges $35 to buy funds from other companies (I believe Fidelity charges $75).

All that being said, Fidelity is certainly a more than satisfactory choice (and once I have more money, I will certainly invest with them). Just be sure you are investing in their no-load funds and keep an eye on expenses.

Excellent post. Something brokers won't tell you is that, on average, managed funds are outperformed by index funds. That difference in performance is equal to the fees they charge for their "services." The solution for the average investor is low cost index funds with appropriate asset allocation (which is about the only aspect of this whole game that we can actually control).

William Bernstein, a practicing neurologist, has written two phenomenal books on the topic. The more readable of the two is The Four Pillars of Investing, which I highly recommend.

 

[Poety]

Fidelity is $2500 minimum with no transaction fees, $500 minimum if you are using an IRA of any sort. My plan is to ride on those mutual funds until I get the 10K required to switch to a total market index fund. The expense ratios in the Fidelity funds are so-so (0.7-0.9%) but their market index funds are only 0.18% or so.

Mump, I have about 60K I'm looking to invest but I have it in a HYMM account for access without penalty - I'm at 4%, would I do better in a mutual fund? I don't want to lose my principal at all!

TIA

 

[teninepit]

Mump, I have about 60K I'm looking to invest but I have it in a HYMM account for access without penalty - I'm at 4%, would I do better in a mutual fund? I don't want to lose my principal at all!

TIA

While you could do better, historically speaking average in excess of 10%, you would also have to take on the risk of losing your principal. Look at early 2000-20001 when the market returns were negative. Compared to 1997-98 when the market was going out of its mind. Gotta take the good with the bad.

Statistically speaking, if you are capable of leaving the money in the stock market with diversified investments of funds over a 10 yr period you have very good chances of making a positive rate of return in excess of your previously mentioned 4%. I would say even greater than 8-10%

While I dont wish to open a can of worms from others that hate em, check out an Equity Index Annuity. This allows you to invest in an annuity that "particpates" in the SP500 Index returns. The beauty of it is that you dont not have ANY risk of losing your prinicpal. I know of several offering first year returns guaranteed in excess of 10%. You can PM me if you wish some information. Further am not recommending anything just passing on information.

Thanks

 

[skypilot]

Mump, I have about 60K I'm looking to invest but I have it in a HYMM account for access without penalty - I'm at 4%, would I do better in a mutual fund? I don't want to lose my principal at all!

TIA

How many years can you put the money away and not touch it. If it is 10 years then you should put it in the stock market. If it is only 5 then just leave it in the money market or find a CD paying 5% at

http://www.bankrate.com

 

[APACHE3]

Actually an annuity is an insurance product, so yes the principle is always covered, and I think, that because its an insurance product, it cannot be taken form you in a malpractice suit. I would like to know more about these annuities...they are not for everybody..but they may be for docs!!

 

[teninepit]

Actually an annuity is an insurance product, so yes the principle is always covered, and I think, that because its an insurance product, it cannot be taken form you in a malpractice suit. I would like to know more about these annuities...they are not for everybody..but they may be for docs!!

You are correct, annuity is an insurance product but that fact does not provide the guarantee against loss of principal. There are variable annuities called TSA for example that teachers use often and they have mutual funds within them, which does provide a measure of risk or loss of principal.

Back on this point, in many states annuities are creditor proof (i do believe some states do not provide this protection) as is your company sponsored retirement plan (401k). So they are safe from malpractice issues which make them great for docs as a retirement investment vehicle.

The equity index annuity (EIA) allows you to invest through the annuity in the SP500 Index. A few others do have Dow Jones Index and even Nasdaq. SP500 is the primary so lets stick with that. The insurance company says they guarantee you will not lose your principal. However, for that right, you are "capped" in the amount of gain you can realize from the market. For example, if SP500 returns 10% for a year and your cap is 8%. Then your account is credited 8%. If SP500 loses -15% a year. Your account gets?? anyone?? that is right 0 loss for you. You can never lose when the sp500 does. There are a few other details put this is a quick explaination as to how it works.

Various companies provide for various "caps" so you need to shop around or ask an financial advisor which might be best for you. This is a nice product for retirement savings, ie long term investing for those that dont want to risk principal. Further you should diversify and not put all your money in this one product or any one product for that matter.

If anyone has further ?? you can post and i will try to get to it or PM me.

Teninepit

 

[skypilot]

In my experience annuities are too complicated and have hidden fees which reduce the return on investment. And the return is critical, a 1% or 2% difference in your return compounded over 20 years can make a big difference. Stick with index funds and you will cut your costs. If you are concerned about risk, keep a big cash reserve and put some money in Government Bonds.

 

[eilros]

I've been with T. Rowe Price since 1999 and have been very pleased with the service, selection of funds and very low fees. I have my Roth IRA, 401(k) and Rollover IRA with them

 

[teninepit]

In my experience annuities are too complicated and have hidden fees which reduce the return on investment. And the return is critical, a 1% or 2% difference in your return compounded over 20 years can make a big difference. Stick with index funds and you will cut your costs. If you are concerned about risk, keep a big cash reserve and put some money in Government Bonds.

Sky please understand an EIA before you bash em. In the EIA we are discussing, you clearly are not up to speed on the facts and making a generalization about annuities. EIA does not have fees. The "cap" could, could be argued it is a fee, but the insurance company does not even make the money when the SP500 outperforms the "cap" on the annuity.

Now for an example, when your index fund goes down 20%, the EIA value remains the same as it was and the insurance company absorbs that loss/risk. Then while it takes you roughly 3 years to make up your loss at 10% yearly gains, the EIA client still is making 8% (cap). See below example.

sp500 index fund 10k less 20% =8k *10% = 8800 *10% = 9680*10%=10648

EIA 10k less 20%= still 10K *8%= 10800*8%=11664*8%=12,597.

So to summarize. Starting with 10k your index fund losses 20% then makes 10% per year for 3 years. Ending value $10,648. While the EIA with the same returns participating in the sp500 with a 8% cap has a value of 12,597. A 3 year total return of 25.97% compared to the SP500 index mutual fund of 6.48%.

Not to mention each year thereafter the sp500 index goes down so does your index fund while the EIA does not lose value. Further, you overlooked the creditor protection issue. If you purchase an sp500 index fund in a taxable account you have no creditor protection, not to mention having to pay taxes yearly on the dividends paid.

Govt bonds or any bond also have many disadvantages too. But I will not really get into that for now. I ask only that you understand something before you bash it. Just because you dont like it does not mean it could not be VERY useful for others.

 

[skypilot]

Sky please understand an EIA before you bash em. In the EIA we are discussing, you clearly are not up to speed on the facts and making a generalization about annuities. EIA does not have fees. The "cap" could, could be argued it is a fee, but the insurance company does not even make the money when the SP500 outperforms the "cap" on the annuity.

Now for an example, when your index fund goes down 20%, the EIA value remains the same as it was and the insurance company absorbs that loss/risk. Then while it takes you roughly 3 years to make up your loss at 10% yearly gains, the EIA client still is making 8% (cap). See below example.

sp500 index fund 10k less 20% =8k *10% = 8800 *10% = 9680*10%=10648

EIA 10k less 20%= still 10K *8%= 10800*8%=11664*8%=12,597.

So to summarize. Starting with 10k your index fund losses 20% then makes 10% per year for 3 years. Ending value $10,648. While the EIA with the same returns participating in the sp500 with a 8% cap has a value of 12,597. A 3 year total return of 25.97% compared to the SP500 index mutual fund of 6.48%.

Not to mention each year thereafter the sp500 index goes down so does your index fund while the EIA does not lose value. Further, you overlooked the creditor protection issue. If you purchase an sp500 index fund in a taxable account you have no creditor protection, not to mention having to pay taxes yearly on the dividends paid.

Govt bonds or any bond also have many disadvantages too. But I will not really get into that for now. I ask only that you understand something before you bash it. Just because you dont like it does not mean it could not be VERY useful for others.

Heh heh, sounds complicated. 🙂
Skypilot, CPA (former CPA)

 

[jawicobike]

Sky please understand an EIA before you bash em. In the EIA we are discussing, you clearly are not up to speed on the facts and making a generalization about annuities. EIA does not have fees. The "cap" could, could be argued it is a fee, but the insurance company does not even make the money when the SP500 outperforms the "cap" on the annuity.

Please tell me where you can buy a no fee annuity. According to morningstar average annuity fees are 2.35% not including the back end fees. Also aren't annuity withdrawals taxed at regular income tax levels as compared to mutual fund withdrawals that are taxed at capital gains levels? Once again if you have found a no fee annuity please direct me to it.

 

[flighterdoc]

lowest cost mutual fund option is clearly Vanguard... it also has a great website... fidelit, TIAA-CREF... etc. all suck compared to Vanguard... 3k minimums and no transaction fees...

Vanguard is tops, very low, tax friendly costs, no transaction fees, etc.

I have my money in the Wilshire 5000, S&P500 and a little in foreign (european) funds.

Also, for good advice check out www.bobbrinker.com - read his booklist, and if you can listen to his show. It's free (and excellent) advice. If you want to buy his newsletter thats good too, his advice got me out of tech in 2000 right before the crash (and is funding my medical education now).

 

[mcgreen]

Please tell me where you can buy a no fee annuity. According to morningstar average annuity fees are 2.35% not including the back end fees. Also aren't annuity withdrawals taxed at regular income tax levels as compared to mutual fund withdrawals that are taxed at capital gains levels? Once again if you have found a no fee annuity please direct me to it.

Most annuities sold by insurance agents and full service brokerage houses are high fee garbage. The insurance agents generate a huge fee for unloading it on you and you get a lousy return and huge penalties when you wise up and want to take your money elsewhere.

Vanguard sells variable annuities that are backed by some of their popular low fee mutual fund. The cost of the variable annuity is 0.25% to 0.3% more than the mutual fund. Thus given Vanguard's low fees your annual fee for the Vanguard variable annuity will be less than most mutual fund sold by other brokers.

You need to determine if you need an annuity, instead of a mutual fund, in some states the annuity may be considered the same as life insurance and thus immune from your creditors but unlike mutal funds all gains are taxes as ordinary income.

 

[Pinkertinkle]

wow way to bump, anyways the in thing to do is buy ETF's, mutual funds are so 1990's.

 

[sam1999]

I did not read all the posts but I will second Fidelity

There are 4 types of brokerages

1. Super wealthy (like 10 or 25 Mil ++ etc)= Merill lynch, US turst etc. Consider this if you have a trust fund, won a mega million lottery etc. I think for most people, medical profession salary will not get you there.

2. Full service brokerage. Merill Lynch, Morgan stanetly smith barney, Edward jones, etc. There you can have a account with 100K+ but you will get a broker according to your assets. More money more senior broker. You have to select a broker and it is like choosing any other professional some are good and some are not.

3. Premium discount brokers. Fidelity, Schwab, TD ameritrade etc
Relatively High commission but good service. Recommended for busy professionals and it is DIY investing.

4. Discount brokerages. All other, like thinkorswim, scottrade, firsttrade etc. Relatively low commissions and it is also DIY investing.

Customer service at Fidelity is next to nothing. In fact it may be better than many full service brokerages. I would recommend Fidelity and I use them.

At Fidelity and others there are 3 categories of mutual funds.

1. Load fund- Run with your money. Not a chance

2. No load - with transaction fees (NL- T). At Fidelity you pay $75 to buy but none to sell. But once you own the fund you can set AIP (automatic investment plan) for $5 per transaction. But you pay nothing at sell side. You have to keep the fund for a minimum time period stated by mutual fund other wise you be charge redemption fees. Time period can vary like 0 day to 1 year. Fidelity has good selection of those. This is recommended for those who want to buy $10000 a single pop.

3. No load- No transaction fee funds (NL- NT). Here you pay nothing to Fidelity or others but fund companies have a revenue sharing agreement with brokerages so brokerage get something from fund company. Some funds have only load shares, some have only NL-T and some have NL- NT and some are in between. In most cases you have keep these shares for 180 days by brokerage or longer if mutual fund requires. For example if you buy ABCDF (a hypothetical NL-NT fund), you must keep this for 180 in order to avoid short term redemption fees by brokerage plus this particular fund may have its own minimum of 1 year holding period. So read prospectus carefully.

This is only example of same no load fund but 2 share classes, no solistation here. SLADX, has expense ratio of 0.59% but you need $10000 initial investment and SLASX has 0.92% expense ratio but has $1000 initial investment. With first one you need to have $10000 + transaction cost if buy at a brokerage but if you have low money you can buy second share class with $1000 minimum plus no transaction cost. In the first example you will save money in the long run because of low expenses. Over 10 -30 years it can be quite a bit.

Most discount brokerages charge both on buy and sell side. But with Fido you pay $75 only on buy side on NL-T funds. I like Fido, its great service and selection of funds.

At fidelity website under mutual funds there is a selection which say NL-NT funds selected by Fidelity. This is a quite good list. It may not be the Best for some individuals as they may have their own taste. Otherwise you can go to fidelity office or call them and I think they can help you there as well with no charge (I think).

 

[omegaman]

wow way to bump, anyways the in thing to do is buy ETF's, mutual funds are so 1990's.

I understand that an ETF is much better that the old style full load high fee mutual funds, but when you have complete families of low fee no load funds like, Fidelity and Vanguard that allow you buy and sell funds for free on their websites, I do not see much reason to use an ETF.

ETF's requires you to pay brokerage commission to buy and to sell. I do not day trade in mutual funds so I will gladly forgo the $5 to $70 commission every time, I want to buy or sell shares of and ETF along with the ability to trade, any time the market is open in favor of the choice of trading Fidelity and Vanguard mutual fund for free on their websites once a day.

 

[sam1999]

ETFs can be quite good alternative in comparison to open ended Index mutual funds.

ETFs are same as Index funds plus they can be traded any time. First you have to understand in which camp are you, index fund (mean you can't beat the market) or regular mutual funds. If you are in index fund camp, then ETFs can be very attractive. All you need to do see ETF from various sponsor and see what is underlying index (e.g. S&P 500 index is same so no point of choosing the one with high expeneses) the choose the one with

1. Low expenses
2. Good assets like 100 Mil +
3. Good volume like 100K + shares per day, because you want liquidity

Adv. of ETFs vs Open end index fund:
With open ended fund you will get price by the end of day. With ETFs you can buy/Sell though out the day so you may end up paying more or less the price by the end of day. And there is bid and ask spread which can pay for transaction fees for itself. Some brokerages are luring customers who have sufficient assets (like 25K or more) with 100 free trades per year which is quite good for a regular investor.

Problems with Index fund/ETFs over Managed funds:

You can't beat the index both in a rising or declining stock market in either direction.

If you look at S&P 500 Index funds at the bottom of markets, it was almost were in red in last 12+ years. Now its 5 year annualized return is 0.63 per year. Most active managed funds which I follow are doing better than S&P500 Index fund.

Indexer are saying, all you need asset allocation. When market goes up sell stocks, put more money in bonds and sell bonds, buy stocks when market goes down. That's what most index guru are preaching and it is absolute truth but why not.

1. Most people have jobs/careers. They don't have time do this allocation all the time.
2. If you do this quite often, they they label you market timer
3. Most of us are human, when market goes down, very few have guts to sell bonds and buy more stocks. Likewise when market is rising no one wants to sell stocks and buy boring bonds.

Why pay to someone to buy active managed funds:

1. First you need to read fund prospectus to understand what they do.
2. Mutual fund manager's track record. Believe me there are very few are around 10+ years and have good record
3. Read fund manager's quarterly or yearly letters to see if it make sense. If you read some of worst performing funds last year, their managers were beating chest and were buying falling knives. As compare skeptical ones did much better (this is a general comment).
5. Past returns are not grantee for future returns but at the same time you don't have any other measure. One way to look at is which funds out performed S&P500 in year 2008 and see why. Some of them sold assets early on and had load of cash.
5. Fund with below average expenses.
6. If you have job like in medical profession then you need some steady funds, which are mostly assets allocation or balanced funds and why, reasons are:

a: In a balanced fund, fund manager can automatically re-balance fund's allocation (lets say 70/30 or 60/40) according to market condition which many people have difficulty to do in a rapid falling market (like last year) so it preserve assets and you can sleep at night. If you look at most balanced or asset allocation funds they did lot better than S&P500 index and your capital is still there as compare to S&P 500 is still 30% less than its peak in 2007.

b: Some people are advocating buy and hold a stock for long run. In reality there is no buy and hold a single stock for ever. You have to sell it at some point. When you sell a stock at a high price, sure you will pay tax but at the same time you will lock in gains as well.

c: Key for people with job is find 5 or 6 active good mutual fund managers (mostly I will include balanced and world allocation fund category here) which you like and spread your core allocation like 2/3 or assets there and rest you put some specialized things like real estate/ commodity fund, cash or some special stock from your medical work etc.


I know many people will attack me with hate mail saying balance funds are for old people and young people should be in stocks only. I will say NO and why:

I am using this as an example, no marketing.

Does any one know dodge and cox funds? It is one of the oldest mutual fund company their funds are around I think from great depression area. Their 2 mutual funds are public traded since 60s. 40+ years is a long time.
I can only get 15 years return and tax data. By the way in mutual funds returns are after paying expense ratio (ER).

Name ER 15 year return 15 year tax cost ratio (money lost to Tax Man)

VTSMX 0.16 7.20 0.55 = 7.20 - 055 = 6.65

VFINX 0.16 7.16 0.54 = 7.16 - .54 = 6.62

DODGX 0.52 9.82 1.5 = 9.82 - 1.5 = 8.32

DODBX 0.53 8.68 1.78 = 8.68 - 1.78 = 6.9

AMAGX 1.3 10.36 0.19 =10.36 - 0.19 = 10.17

AMANX 1.32 8.64 0.89 = 8.64- 0.89 = 7.75

If you look at the data which don't lie, balanced funds beat the hell out of index over long run. Believe me 15 years is half your career time period. I can't get longer data for all funds for the same time period, that's why I am limited to 15 year data. This data is as of last Friday. Key is to find 4-6 good manager and divide your assets among them.

As you can see in the above case,
1. Good active managed fund beat index fund even after paying taxes
2. With balance funds, key is low volatility. If you are willing to give up some return but still better than pure stock index return, you can sleep at night and focus on your career.
3. Key to this return is not bond protected you but as time goes on, fund manager sell some thing either a bond or stock lock in gain and buy something else again either stock or bond depending upon market which most people with jobs can't do. It is a statistical thing I will try to find a better example as I am having a hard time explaining.


I am trying to make my point by comparing apple to apple. I am only using active funds where same manager is managing both stock and balance fund. Remember these returns are given the volatility. There any many good balanced funds with below average ER, long term manager's tenure and beat S&P 500 over longer time plus low volatility.

Please make your own investment decisions. This is not to promote any particular product.

 

[omegaman]

I am trying to make my point by comparing apple to apple. I am only using active funds where same manager is managing both stock and balance fund. Remember these returns are given the volatility. There any many good balanced funds with below average ER, long term manager's tenure and beat S&P 500 over longer time plus low volatility.

Thanks for your informative post. I have always felt a well manged fund should beat an index fund, but it is the difference in expense ratios that usually give the index funds the advantage. Compare VTSMX to AMANX has a 1.62%ER versus VTSMX with a 0.18% ER that means AMANX will have to will have to return 1.44% better per year to overcome its greater cost or needs to have a 20% greater return just to break even with the index fund. Beating the return of the index by 20% is a nearly impossible task for all the best managed mutual funds.

While you mention you need to pick 5 or 6 active good mutual fund managers, you only listed two dodge and cox's John A. Gunn and Amana's Nicholas Kaiser who else would round out your list?

VTSMX 0.16 7.20 0.55 = 7.20 - 055 = 6.65 Vanguard Total Stock Mkt Idx 0.18% ER
VFINX 0.16 7.16 0.54 = 7.16 - .54 = 6.62 Vanguard 500 Index Investor 0.18% ER
DODGX 0.52 9.82 1.5 = 9.82 - 1.5 = 8.32 Dodge & Cox Stock 0.52% ER John A. Gunn
DODBX 0.53 8.68 1.78 = 8.68 - 1.78 = 6.9 Dodge & Cox Balanced 0.53% ER John A. Gunn
AMAGX 1.3 10.36 0.19 =10.36 - 0.19 = 10.17 Amana Trust Growth 1.61% ER (12b1 Fee) Nicholas Kaiser
AMANX 1.32 8.64 0.89 = 8.64- 0.89 = 7.75 Amana Trust Income 1.62%ER (12b1 Fee) Nicholas Kaiser

 

[sam1999]

I may have several but I don't want to get involve in advice business esp. when it comes to money. Do you want to trust an online poster with your money?

I was using an example of funds where same fund manager run both stock and balance/hybrid fund. So there are no or very few such examples which I like (there may more which I don't know).

I did mention that, please read carefully. Returns are after expenses. It is standard format. One thing I forgot to mention that fund with low asset size always better. Amana fund has only $800 million in assets which is not a lot so expense ratio will be higher.

Most active funds have their glorified return (this measure is called alpha) come when funds assets are below a billion. In case of Amana you pay high expense ratio at the same time you benefit from low assets. So low assets are good. How low is good? My opinion is below $1 billon is best but very low like below $200 M is not good either because fund company can't recoup operational costs so ER will be higher for rest of the share holders. I don't know any magical number below which or above which is bad. It also depends on fund style, as large cap can perform well even with large assets size, same is world allocation as they can any thing world wide.

Dodge and cox is a TF (transaction fees fund) at most or all brokerages but Amana is NTF which means they have to share like 0.3% with brokerages to bring clients (I don't know exact number but that what I read some where that NTF funds share with brokerages).

In case of Amana, they use Islamic principle of Investing. No debt or low debt, low turn over as excessive trading is consider gambling in Islam so manager has to use his or her brain, no stand alone gambling liquor, pork, financial stocks. Grocery stores will be ok but not beer company stock.

I checked few months ago and I need to check again. Fund manager of Amana, Nick Kaiser is not Muslim (at least that's what I can tell from name) he runs few other funds besides Amana. At Amana he can't buy financials, so you can argue Amana's retrun are due to not having financials.

WRONG

Amana performed quite well even leading up till this mess in 2007 so having no financial did not matter much.
Nick Kaiser can buy financial stocks at other mutual funds which he runs but their performance (I checked few months ago or so, please do your own research) is lower than Amana.

Please don't fixated on S&P 500 ER is 0.16 vs more for active fund manager. For active fund management fees I look few things.

Are they share holder friendly? How to tell

a. do they close their funds as fund size goes up
b. Do they charge below average ER for the fund category?
c. In general I pay close attention to funds with below 1% ER but in case Amana, I am ok as fund as low assets plus it is NTF.
d. Have they decreased ER as fund size has gone up. In case of Amana I think answer is yes.

Is there any regularity issues? Remember market timing? You dear fund management was eating you.

Is your fund involve is security lending which is basically pawning mutual fund shares so fund management gets all the goodies but when entity who borrowed your shares went under (remember Lehman failure) you or your mutual fund lost those shares. It is legal by the way. So read prospectus or call fund company to enquire about it.

Please remember this I am not marketing any fund. I just mentioning these funds which like and have all the characteristics of a good fund and compare those to Index. I am not an Indexer and proud of it.

 

[sam1999]

sorry duplicate post.

 

[sam1999]

By the way if you are buy and hold S&P 500 index fund, its 10 year annualized retrun is -1.26% per year plus you have to pay tax on dividend or capital gain distributions if there is any.

Does any one has stomach to hold that long and go through 2 crisis, 2000-02 and 2007-09 and still not out of woods.?

Only +ve thing which goes to its favor is $ cost average which will vary from one person to another and how and when did you do it. Same will be true to have $ cost average in an active managed fund.