General Q about investing/returns etc...

[JHZR2]

ditto... pay off the car. How is it that you could pay off your home before 40, but needed a loan to get a car? Seems to me it would be better to keep a mortgage a few months longer and have paid the car off ASAP (??????? just guessing????) Its a few hundred here vs. a few hundred there, but a home allows for a tax deduction.

JMH

 

[JHZR2]

correct me if Im worng, but the biggest problem with ETFs (not one that AJ would have though) is that ETFs need to be bought through a broker / discount broker who charges a comission. Whereas you could buy, say $25 worth of no load mutual funds each month, and get $25 worth of shares, an ETF you need to do a one-time purchase in order to keep fees low.

WOuldnt a no-load index fund with very low fees be a better choice, as there is no comission to purchase, and the fees are low anyhow?

JMH

 

[XS650]

quote:

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Originally posted by pitzel:


http://www.etfzone.com has a nice chart under the heading of 'tax advantages'. During the recent market contraction, the average ETF distributed 0.31% of its value as capital gains, while traditional mutual funds distributed 5.87%.

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Your other points were good for someone who likes to trade a lot on short notice, but that one's misguiding. ETFs tend to be comparable to index funds and mutal fund index funds have very low turnover.

 

[GROUCHO MARX]

If you trade mutual funds in and out prior to 6 months there is often a penalty to pay.

 

[XS650]

quote:

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Originally posted by pitzel:


http://www.etfzone.com has a nice chart under the heading of 'tax advantages'. During the recent market contraction, the average ETF distributed 0.31% of its value as capital gains, while traditional mutual funds distributed 5.87%.

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Your other points were good for someone who likes to trade a lot on short notice, but that one's misguiding. ETFs tend to be comparable to index funds and mutal fund index funds have very low distribution rates. For all practical purposes they should be identical to the ETFs that target the same index or goals.

 

[Slick17601]

Sounds to me like a mixture of balanced (lower risk) mutual funds and fixed income (bonds & CD's) are what your are looking for. You do need to hold some stocks to help fight inflation and maintain purchasing power. A good financial advisor would be a great help. I know another poster said avoid load funds. That said find a good advisor who sells American Funds. You probably have never heard of them as they do not advertise. Do some research search and you will find that even paying a sales charge they can't be beat over the long term. Yes they are load funds but he will be able to show you examples where you invest a decent sum and withdraw say 1% of your principal balance per month. Over past history this provides increased income over time and your investment keeps up with inflation. It would be worth your while to check it out. In investing it's best to hit singles and the occasional double rather than try for the home run.

 

[HardbodyLoyalist]

There are a lot of high-quality stocks that sport dividends approaching 4%. Citibank, Bank of America, Sara Lee and Merck come to mind. You then at least have the POTENTIAL for capital appreciation while collecting dividend checks every few months.

Of course, there's always the possibility of capital DEpreciation. But then, you already knew that.

 

[Audi Junkie]

I knew I asked the right guys. (wink) thanks.

 

[pitzel]

quote:

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Originally posted by XS650:
Your other points were good for someone who likes to trade a lot on short notice, but that one's misguiding. ETFs tend to be comparable to index funds and mutal fund index funds have very low distribution rates. For all practical purposes they should be identical to the ETFs that target the same index or goals.

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In theory, yes. However the big difference is this between ETF's and index mutual funds.

Say you have a massive market downturn tomorrow, and a gazillion people decide to sell their ETF's or their index funds.

The ETF manager, in order to 'sell' the underlying assets, merely 'redeems' units of the ETF for baskets of the underlying shares. To the IRS (or the CRA), this is not a taxable event at the hands of the ETF.

However, the index mutual fund manager has no option to redeem mutual fund units for baskets of shares. The index mutual fund manager must go to market and liquidate, for cash, on behalf of the fund, any stock necessary to meet unitholder redemptions.

To the IRS/CRA, this is a taxable event at the hands of the fund itself.

The chart I posted illustrates the point very well. Those index funds incurred huge capital gains within the fund themselves, while the ETF's did not, even though they both traded identical underlying holdings.

The holders of the index mutual funds, in addition to losing a bunch of wealth due to the market crash, would owe money to the IRS to pay for capital gains. Talk about adding insult to injury -- after all, what 'gains'?

 

[pitzel]

quote:

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Originally posted by Slick17601:
Yes they are load funds but he will be able to show you examples where you invest a decent sum and withdraw say 1% of your principal balance per month.

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When the S&P 500 was putting on 13% a year consistently for the past 20 years, 1980-2000 sure, that strategy would have worked well.

If you withdrew 1% of the portfolio every month during the most recent downturn, 2000-2005 the portfolio would be worth less than half of the starting balance.

A 12% annual withdrawal from a portfolio isn't sustainable, even with superinflated USA stock market returns.

Safest way to invest is to put 100% of your money into a portfolio of USA and international equity ETF's, and only spend the dividends. If you want to avoid paying capital gains taxes, get a margin account, and use margin for larger purchases in retirement instead of selling your stock.

Taxes in the USA *must* go up at some point in the future due to budget deficits and ambitious civil service expansion -- ETF's and a margin account are your best defenses available against the inevitable increase in taxation.

 

[msparks]

quote:

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Originally posted by haley10:
AJ, you are 40 yrs. old and haven't developed a relationship with a professional financial advisor or brokerage firm?? This calls for professional advice, so I won't attempt it. I'm sure others will chime in.

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Have you found one that know what they are talking about? There are so many crooks in the investment/insurance/brokerage business it's not funny.

My buddy who is a millionaire uses a broker, sometimes I wonder if he has him buy or sell some stuff, just so he can make a commission? I don't know.

My advice is go to the library and learn a little bit about long term investing.

I have a couple of stocks right now that yield over 10% dividend return. The are Income trusts from Canada, I've got a nice balanced fund from Janus that has been yeilding about 5% for the last few years.

Biggest thing is you want to find something that you can get a rate of return that will allow some growth. So that the money you are earning will keep up with inflation.

 

[msparks]

quote:

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Originally posted by JHZR2:
correct me if Im worng, but the biggest problem with ETFs (not one that AJ would have though) is that ETFs need to be bought through a broker / discount broker who charges a comission. Whereas you could buy, say $25 worth of no load mutual funds each month, and get $25 worth of shares, an ETF you need to do a one-time purchase in order to keep fees low.

WOuldnt a no-load index fund with very low fees be a better choice, as there is no comission to purchase, and the fees are low anyhow?

JMH

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But all funds have reoccuring fee's based on a percentage of the portfolio. I believe the vanguard S&P is the lowest at like .25% Regular funds are between 1-2%. So you will pay that every single year, win or lose.

With an ETF, if your using a decent amount of money. Say $5000 a trade your percentage on a $10.99 trade is .002198%, and you won't have to pay that again until you sell the stock/ETF.

Only if you are buying trades of $25 would you lose you butt on commissions.

With the amount of mony he is talking about $10,000 trades would be pretty normal. (That would give him 30 stocks/ETF for a really nicely diversified portfolio.

 

[JHZR2]

That's true, for the large dollar value buys. My comment was more generic in nature.

Dont ETFs have fees somewhere in the range of 0.07% or so, as well? Sure theyre low, but at the same time I dont think vanguard's are that high... If so, I know fidelity has new low fee funds...

JMH

 

[XS650]

quote:

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Originally posted by JHZR2:
That's true, for the large dollar value buys. My comment was more generic in nature.

Dont ETFs have fees somewhere in the range of 0.07% or so, as well? Sure theyre low, but at the same time I dont think vanguard's are that high... If so, I know fidelity has new low fee funds...

JMH

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Vanguards large index funds run about 0.18-0.19% or 0.09-0.1% if you have large amount invested in the fund.

I was always bit fuzzy on ETF fees. Don't they make their money by the differance in bid/ask prices?

Pitzel's links to distribution tax info was new to me and would be worth understanding if my Index funds weren't in tax defered accounts. Anyone investing much money in ETFs or index funds in taxable accounts should read that carefully.

 

[pitzel]

XS650, ETF's take their 'fees' by reducing slightly the amount of dividend paid out. For example, if the S&P 500 pays a 2% dividend, a S&P 500-based ETF will take a small amount for itself, and pass the rest onto the unitholders as cash or additional shares.

Some ETF's and index funds also engage in securities lending and other riskless arbitrage schemes. Vanguard is particularly good at this -- in recent years, some of Vanguard's index funds have outperformed the index by virtue of generating adequate revenue through these activities.