By: Julia Aidan
Submitted: 2011-07-08 21:47:55 | Word Count: 362
Should investors buy ETFs or mutual funds? The answer is, it depends. It depends on the priorities an investor has. There are three factors driving the decision: costs, custody, and convenience. The weight that each person places on each of these three factors will determine whether they will be happier with ETFs or mutual funds.
The simplest way to look at costs, custody and convenience is to analyze Vanguard fund choices. They offer both ETFs and mutual fund shares of the same fund.
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1. If you plan to buy only Vanguard funds - go directly to Vanguard. This is the least expensive option for Admiral Share class investors. For Investor Share class investors, this also is a low cost option if you are buying multiple funds in a diversified portfolio and if you are dollar-cost averaging.
2. If you plan to buy other investments in addition to Vanguard funds and want the convenience of one custodian - choose a low cost custodian and buy Vanguard ETFs rather than Vanguard open-end mutual funds. The commission cost is lower and the expense ratio for ETFs is also lower (slightly lower that Admiral shares also). That would provide the convenience and low cost.
3. If you don't care about having multiple accounts or the inconvenience of tracking and trading in different places and you are investing regularly, then go with Vanguard directly for the Vanguard funds and open a low-cost custodian account for all the other investments.
4. If you are buying only a couple of Vanguard funds one-time, then it is a coin toss. You can go direct through Vanguard or buy ETFs. The cost difference is too close to call. For Investor class shareholders, going through a low-cost broker and buying ETFs is probably the lowest cost option in the short-term, however direct Vanguard investors can convert Investor class shares to Admiral Shares Class when the fund reaches $100,000 in assets.
Author Resource:-
Learn more about index fund investing to lower your overall cost of investing and improve the performance of your portfolio. Asset allocation and portfolio rebalancing are key to keeping more of your money working for you.
