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March 14, 2007


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If I plan to make one purchase per year in each of the following accounts: 2 ESA's and 2 Roth IRA's, would it be cheaper to use ETF's instead of Mutual Funds. In other words, I will contribute $2000 to my ESA for 2007 and I can purchase a mutual fund that tracks the S&P 500 OR an ETF that tracks the S&P... which would be better? I plan to "buy and hold" for 5 to 15 years...

NCN --

It depends on the cost of each index fund and ETF (believe it or not, they have different costs even from one index fund to another.) Ask the company you're using to invest (like Vanguard) to tell you the expense ratios.

That said, if you're investing a big lump sum, ETF will usually be the best option. However, what I do when I save a big amount is to put it into the account in cash and then dollar-cost-average it throughout a period of time. In this case, I use index funds since I'm buying on a frequent (monthly) basis.

Hope this helps.

There's nothing particularly wrong with the advice in that article, but I would caution that one-size-fits-all investing isn't necessarily best. (As much as I hate using the word best- there is rarely such a thing.)

The conventional wisdom is that younger investors can afford to assume more risk by selecting targeted indexes such as small/mid-caps or emerging markets. Older investors should be transitioning to lower risk and/or fixed income.

why do you say older investors should be transitioning to lower risk and/or fixed income? Is this because older investors lack the time commitment or should be taking less risks because they are old?

Older people have less time to make up large losses that can occur, such as 2000-2002. Older people also tend to be retired, so they don't have income from a job.

I think the investment advice in this article is quite good.

Great article - I've had investments all over the place the last 10 years, and for the last year or so (excluding 401K) I've been stocking away $300/month into the Vanguard Prime Money Market, and the Vanguard Index 500 fund.

Just curious about 2 things:
1) Do you recommend the Vanguard Total Stock Market Index fund over the 500 Index fund?

2) Any update on whether of not you picked up the International Stock Index and/or Total Bond Market funds? If so, any comments on them so far?


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