Monday, October 27, 2008

ETFs for a Crazy Market

I like ETFs as a way to buy an index now (as opposed to an index mutual fund) for two reasons:
  • The ETF market place appears to be very competitive - you'll find more funds with lower expense ratios. Last year when I went looking for bond funds Van Guard was the only one offering a truly low-cost bond index. A number of larger players are in the ETF space, forcing expense ratios down.
  • When you buy an ETF, you get the price as soon as the transaction completes, which is to say, it's pretty close to what you want. When you buy a mutual fund, you put the order in during the day, the day closes, then the price recalculates, then maybe you eat the day's gain or loss. Normally this is a non-issue (and if you have a disciplined approach and simply buy mechanically at a set interval, then who cares). But if you are like me and have to make your buys by hand (I have a SEP-IRA, so no automatic anything) then there's really no reason to be eating a day's gain or loss in the internet age.
Of course, ETFs let you "trade" indices and I can't advocate that. If you want to gamble, you can at least get free drinks in Vegas.

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