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February 24, 2009

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Wouldn't index funds be a cheaper and more cost-effective fund to run? Did they specify why they are doing this? It doesn't seem to make sense.

I suspect its pretty clear why they are doing this. They don't make enough fees on the index funds so they are eliminating them and hoping most people will redirect the funds to actively managed funds that will generate higher fees for them.

I have to agree with FMF on E*Trade. They have proven over the recent years to be a poor run company and not very concerned with their customers.

I've been using Etrade for quite a while. Glad I didn't pick their index funds to invest in, at this point. I wasn't real happy with their returns vs other index funds, even with the low expense ratio, they hadn't boomed as much during the boom

Stick with Vanguard. They are the best. E*Trade is horrible. Stay away from them.

I'm not sure that I agree. Mutual funds start and stop all the time. I myself have had funds liquidated because they ceased to exist. This happened in my work's 401K account, so I didn't incur a taxable event, but the fund was available to taxable accounts as well. It's just part of playing the stock market.

First a disclaimer: I am a satisfied ETrade customer. They are much more customer-friendly than Ameritrade. ETrade has a decent trading platform, and I find their online banking service excellent (and for me it is all cost-effective).

However, I have to ask two questions:
Why would they think they can run a mutual fund?
and, hence
Why would anyone invest in their funds?

ETrade is an amateur in this business. They probably had such low take-up compared to real fund companies like Vanguard that the funds were not profitable.

It's like the banks that try to sell mutual funds and other products in their lobbies. They are selling junk to old ladies who don't know any better. Go away!

And by the way, since it is a taxable transaction, be happy they are doing this now. You will probably not pay much tax on your gains. And you can invest in a real index fund immediately - or better yet, if you have a decent sum, an ETF such as Vanguard Total Market (VTI).

I have ETSPX and didn't receive any notification?

I tried ETrade a few years ago and had such a horrible experience with setting up my accounts and really poor customer service, that I just can't bear the thought of dealing with them anyways.

If you read and implemented the advice in my books, you would have known better than to invest in eTrade's index funds...you got what you paid for.

You know, the personal finance blogging community has been pushing index funds for quite a while. I think that various funds are one of core problems with out economy, today. People need to get out of funds and invest in companies that they want to take an interest. Shareholders have been complacent and have not been holding the boards and executives accountable.

Put your money in a few companies that you believe have some value, or could be valuable, and become an active shareholder. Make your voice heard. If the executive isn't performing, make it known.

We need active owners in our enterprises.

Compounding,

Have you ever heard of the word diversification and time management?

I've never used ETrade and only set up a brokerage account a couple years ago when I inherited a few thousand in 3 different stocks. I opened an account with Schwab and have been quite satisfied with their customer service and ease of use.

I was going to close the Schwab account because I had sold most of the stock, but then (after reading this blog) discovered their 2% monthly cash back VISA card. The money goes into the account each month (not annually as a credit like many cards) as long as I maintain a $1000 balance. I'm getting about $50/month so far by just using my VISA card for ordinary purchases.

I also have used Vanguard for about 25 years, but only for mutual funds, not as a brokerage. So I echo those that recommend Vanguard for index fund investing. But if you need a brokerage you might want to consider Schwab.

If you ever read some of the interviews with of the people at Vanguard who run the index mutual funds, you learn that it's not necessarily a no-brainer to run these things. The mechanics of doing it right and efficiently are far from trivial.

I suspect E*Trade's decision, more than anything, was based on the fact that they weren't up to the challenge and so their funds weren't competitive in the marketplace.

The timing isn't too bad though. Since the markets are so far down over the past year, there could hardly be a better time to have a taxable event forced upon you.

I had E*trade years ago and had such horrible experience with their customer "service" that I'll never go back. I had a series of email interactions with them that was so bad it looked like an Abbot & Costello "Who's on first" routine.

I would guess the key reason they shut them down is that they didn't have enough assets in the funds to make it worth keeping them going. Their funds generally had less than $100M in them and thats not much for a fund. They probably just decided the funds weren't big enough and their costs were too high so it wasn't a feasible business for them to keep going.

Jim

If the share price is less than your basis in some or all of your shares, better read up on the wash sale rule before you move that money. I'm no accountant/tax lawyer, but if you move that money right into another fund tracking that same index you might lose a potential deduction, or worse, pass up the opportunity to offset any capital gains you might realize from that sale.

Compounding,

When you own an index fund you own fractional shares of many corporations. But that is neither here nor there. Unless you own a significant share your interests don't register to the board of directors.

I own ETSPX and it's down 46% since I bought it! etrade sucks!!!!

I was never notified they were going to sell my etrade funds and just found out when I checked my accout after the market went up a lot since they sold it. I would never do business with ETRADE again. Anyone have similar problem? Can any action be taken because they said they sent an email, but I never saw it?

Jason --

I don't think so. I think you're stuck with the result.

I owned ETSPX for years and I didn't get a communication about the fund liquidation. It just sits in this IRA account that does nothing but ride the S&P500 wave. So, I was wondering why my account was at approximately the same value the last few times I logged into the account... they sold it to cash without telling me! (and yes, all of my contact info is up to date and I typically get trade confirmations via email). Anyone else deal with this problem?

I really expected more from E*Trade... better communications or at minimum roll it into another S&P index fund.

Alison --

As you know from above, I did get a notice from them. Still, I'm not happy with them and I'm moving my investments out of Etrade.

Etrade sold my ETSPX without notifying me. I was notified after the fact, but I did not get a letter stating that they were exiting the mutual fund industry. They picked the absolute bottom of the market to sell out as well and I missed the upside bigtime.

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