Are etf's Index funds wise for a Roth retirement account?

Answer 1

After reading all the previous answers, the only answer that has a really valid consideration is NC. Bstinmaui has a couple of valid points but is mistaken on some of his remarks. It is true that you will pay a brokerage fee on each transaction, but when you compare the expense ratios of EFT's to most mutual funds, over time you will come out way ahead with an EFT. Lets take an example:

Lets assume you put $4000 into DCS with an expense ratio of 0.25% or $4000 into a mutual fund that invests in similar type securities but has an expense ratio of 1.5%, very common and about average. The brokerage fee to buy DCS is $7.00 at Scott Trade and $10.00 at TDAmeritrade. I will grant that you will eventually have to sell it, but lets assume you are a long term investor and will not have to sell it for at least 3 years. You have to give it a decent chance. So your total expenses over 3 years with DCS assuming it increases in value 10% annually will be $20 plus expenses of about $40 for a total of $60.

With the mutual fund the expenses just the first year will be $60. Now here is the interesting part. Are you still with me? 70% of mutual funds underperform the market in general. So you are risking much more than just higher expenses. You are also risking poor investment returns.

One more point. Buy it and forget it when it comes to mutual funds and index funds is not a bad approach. They will grow with the economy and if you are well diversified, which means not just one index fund but several such as one that invests in small cap stocks, one that invests in world markets, one that invests in China, one that invests in oil (yes oil). Then you have a real good chance of building a great retirement nest egg. A real good chance.

Answer 2

The 2nd and 3rd answers are terrible advice and miss the point. You will pay a commission every time you buy and sell an etf. This may, depending on frequency of trading, be more expensive than a mutual fund which incur no costs to change and generally cheaper as you can add to it with as little as $50 down the road. ETF's are great and are tools but usually with larger accounts make more sense. Be careful about asking these type questions with limited info to people here. The guy that said buy it and forget it....is probably the worst advice you can give.

Answer 3

Yes they are and I think most folks miss the point as to why you buy an etf.
Etfs cover a broad range just like an index. If you are comfortable with the index's return over a period of time you should be fine with the Etfs performance. The most important part is to find an investment that meets your investment objective.

Take the S&P 500 it has returns averaging 10-12% per year returns average, over ten year periods. So if you buy an etf that mimics the S&P 500 for that period of time and you average 10%you will double your money every 7.2 years not bad if you have 10-20years until retirement.

And the best part you just buy it and forget it.

Answer 4

Not really... The tax advantage of ETFs compared to mutual funds is that they do not distribute capital gains. But if you buy ETF for your Roth IRA, it's a moot point, since you contribute after-tax money to Roth IRA and there are no taxes on Roth IRAs. Translation: you should buy ETFs (especially stock ETFs with low dividend yields) for taxable accounts (this way, you only pay income tax on dividends), and reserve the Roth IRA for investment vehicles that produce substantial income or distribute capital gains (income funds and/or high-turnover mutual funds).

Answer 5

Depends on the fees and restrictions. Also what penalties are there for lump sump withdrawals in case of an emergency or income adjustment. Lots of options. Different strokes for different folks. Do your homework. Don't rely on heresay. Get the facts on all your options.

Answer 6

Yes. because it trade like a stock with online discount borkerage firms, you can trade it with minimum fee.