<p>I haven’t done this, but I am thinking about doing this.</p>
<p>Pros and cons of doing this?</p>
<p>Do you end up paying taxes on income you haven’t earned?</p>
<p>Has anybody just bought the spyders etf for the long term instead, and if so, the pros and cons of doing this?</p>
<p>Index funds are clearly the best choice for people like me who have no confidence in their ability to pick individual stocks and have read any of the vast literature which indicates that mutual fund managers are no better than we are (was there ever anyone who fell more quickly from grace than Bill Miller?). They have lower fees, and since they don’t trade very much, they are very tax efficient (no trading=no capital gains to distribute). But then again, ETFs (unlike mutual funds) don’t have to distribute gains anyway.</p>
<p>So EMM1, do you own the funds or the etf?</p>
<p>Remember that not all index funds targeting the same index are the same; they may have different levels of expenses which can (over the long term) affect your returns. The non-ETF (regular open-end) type may have other differences in terms of minimum investment size, trading frequencies, etc…</p>
<p>Also, index funds trying to cover an index with a lot of small or thinly traded companies may have to use sampling or other methods to emulate the index, which can cause variations between different index funds targeting such an index.</p>
<p>Index funds (whether ETFs or regular open-end mutual funds) do distribute dividends for tax reporting purposes.</p>
<p>I own etfs. Right now, I’m not in SPY, but in RWX, EEM, VGK, and DBC. I will reevaluate according to relative strength on Jan. 1. I also got stopped out of XIV today before it rallied.</p>
<p>With ETFs, you have the advantage of being able to trade them at market prices during the day. In addition, the transaction costs are often lower (although Schwab allows you to trade some mutual funds for free, so long as you hold them for 60 days).</p>
<p>One potential downside is that the price of ETFs can deviate from net asset value. I don’t think that is generally a problem with the the widely-traded ETFs.</p>
<p>I have owned SPY for long periods of time. (Currently don’t own it, but I am selling puts and will either buy SPY or something similar) I also own SCHX (Schwab 1000 index) and SCHM. Have also owned QQQ for long periods when I wanted exposure to NASDAQ. An etf like SPY is nice because it easily gives you overall market exposure. That allows me to buy individual stocks because I “like” them, without worrying too much about diversification. I also own VGK - bought a long time ago at higher levels - but I bought it because I had no international exposure. This was an efficient way to get some diversified European market exposure without having to pick individual stocks. I much prefer an ETF to an index mutual fund mainly because I like the intraday liquidity (even if I hold it for a long time) and I like the ability to sell calls against a long position if I want to do that. Also, an index ETF typically pays a quarterly dividend like a stock. I am not sure how the index mutual funds do it. Do they pay a year end, once a year distribution?</p>
<p>EMM1, those are short term trades. I wonder if anybody has held Spy for years.</p>
<p>“One potential downside is that the price of ETFs can deviate from net asset value. I don’t think that is generally a problem with the the widely-traded ETFs.”</p>
<p>That’s not a big problem. Firms arb that away. If it gets real crazy you might be buying or selling at a slightly wrong price. If you are investing long term, and the markets are extremely volatile, you may not get an optimum price.</p>
<p>Ok NJres, your post is what I wanted to read. </p>
<p>And of course, I like the ability to trade options.</p>
<p>Dividend distribution policies for mutual funds (ETF or otherwise) depend on the fund’s policy – read the prospectus to find out for the specific fund.</p>
<p>SPY also has a slightly lower expense ration than VFINX, which in theory should add up over time.</p>
<p>Looks like this site can be used to find some of the cheapest ETFs, though one has to then filter the list by the type of index being tracked:</p>
<p>[100</a> Lowest Non-Leveraged Expense Ratio ETFs ? Cheapest ETFs | ETF Database](<a href=“http://etfdb.com/compare/lowest-expense-ratio/no-leveraged/]100”>100 Lowest Non-Leveraged Expense Ratio ETFs – Cheapest ETFs)</p>
<p>Fortunately for the OP, S&P 500 index ETFs are well represented among the cheapest ETFs. But those who want more obscure index ETFs may have to settle for higher expenses.</p>
<p>Interesting link, ucbalumnus.</p>
<p>No qqqs. No iwm.</p>
<p>IWM tracks the Russell 2000; there is one other competing ETF (VTWO) listed at that web site:</p>
<p>[Definitive</a> List Of Cheapest Russell 2000 Index ETFs | ETF Database](<a href=“http://etfdb.com/index/russell-2000-index/expenses/sortfield/expenseRatio/sortdir/a/]Definitive”>Russell 2000 Index (INDEXRUSSELL RUT) – ETF Tracker)</p>
<p>QQQ is the only ETF that web site lists as tracking the NASDAQ 100:</p>
<p>[Definitive</a> List Of NASDAQ-100 Index ETFs | ETF Database](<a href=“http://etfdb.com/index/nasdaq-100-index/]Definitive”>NASDAQ-100 (INDEXNASDAQ IXIC) Index – ETF Tracker)</p>
<p>The site lists three S&P 500 index ETFs that do not appear to have some “special sauce”:</p>
<p>[Definitive</a> List Of Cheapest S&P 500 Index ETFs | ETF Database](<a href=“http://etfdb.com/index/sp-500-index/expenses/sortfield/expenseRatio/sortdir/a/]Definitive”>S&P 500 Index (INDEXSP INX) – ETF Tracker)</p>
<p>I do most of my investing in tax sheltered IRAs and 401ks, so I’m not worried too much about distributions - they aren’t taxed until I take the money out (or in case of a Roth not taxed at all). But one thing to be aware of in the S&P500 is that it is market capitalization weighted and its performance is heavily influenced by one company - Apple. I generally don’t invest in S&P500 indexes alone - I prefer trying to track the total stock market like the Wilshire 5000. Vanguard usually has very low cost index funds and ETFs.</p>
<p>My D opened a Roth with Vanguard in the Total Stock Market Index. She knows very little about investing so this seemed to be the best idea for her.</p>
<p>I am still in individual stocks, but eventually I would like to shift towards indexed ETFs. I am basically a “buy and hold” person, and I don’t enjoy the thrill of trying to beat the S & P. As one poster has mentioned, the majority of the fund managers can’t do it. For now, I have a China ETF which gives me a diversified way to establish a position in that market. Many ETFs have lowered their expense ratios, and there should not be cap gains, except for the bond ones. Some ETFs have come and gone, so it is a good idea to look at volume, and also to watch the spread in the thinly traded funds. </p>
<p>There is a lazy portfolio, made of 4 ETFs, which I will help my kid set up:
<p>OK for the financial stupid would someone mind explaining what an EFT is and how it differs from a traditional mutual fund? Thanks!</p>
<p>I was going to jump in an say after years of being an individual stock investor (some) and a market sector mutual fund investor (more) I’ve moved to being more of a index fund investor. I realized I am not knowledgeable enough or disciplined enough for my portfolio to rely on my making timely smart decisions … so I’m either in index funds or having someone manage my money.</p>
<p>Go to bogleheads dot org and look at the questions and answers posted there. If there isn’t anything specifically on target join and ask the question yourself.</p>
<p>My lazy person’s portfolio that I’m talking to my kids about is a little different–a riff on the Permanent Portfolio whose performance over the past 40 years has been pretty amazing:</p>
<p>VT–Total World Stock ETF–25%
GLD–Gold–25%
TLT–Long Treasuries–13%
BWX–World Sovereign Bond–12%</p>