- quote -

To my mind, there are two problems with this method. First, assuming a $10
brokerage commission on each ETF purchase, our hypothetical investor is
still paying a one percent upfront fee for the same investment he could
purchase without any fee if he bought a no-load index fund from a mutal
fund company. Now one percent doesn't sound like much. But as numerous
commentators have pointed out, over the long term it adds up to serious
money for the typical investor who sets aside a little from every paycheck
and dollar cost averages. Second, parking the money in a savings account
and then buying ETF shares later is needless complex. The conventional
wisdom is that people are most likely to stick with an investment program
that automatically takes part of every paycheck and invests it without
further effort on their part. The method suggested would also tempt the
investor to spend that money sitting in his saving account, or to dither
around trying to time the market. This, of course, defeats the purpose of
dollar cost averaging.

Don't get me wrong. I think ETFs serve a useful purpose for some
investors. For example, somebody running a large sum of money who needs to
adjust the asset allocation on an intraday basis would benefit from the
fact that the price of ETF shares changes as trades are made, thereby
guaranteeing fresh pricing. And I've read where large institutional
investors may be able to engage in arbitrage when the share prices of a
given ETF differs slightly from the value of the shares in the underlying
index. But to repeat my original point, for the buy-and-hold investor who
dollar cost averages over many years to save for retirement or college
expenses, the upfront commissions on ETFs make them a poor subsitute for
no-load index funds purchased directly from Vanguard or one of the other
big names.

pmb[at]his.com (Paul Michael Brown) writes:

- quote -

Why not just set a threshold amount, like $1000, to accumulate in a
savings account? When you hit the threshold, buy some shares of your
favorite ETF. Next time you hit the threshold, buy shares of your
next favorite ETF.

--
--Ed L Cashin PGP public key: http://noserose.net/e/pgp/

- quote -

I respectfully disagree with the recommendation to dollar cost average
into ETFs.

Sure, it's possible to use exchange-traded funds to construct a portfolio
that is well diversified. And yes, the management fees on most ETFs are
competitive with low cost index funds. But every time you buy an ETF you
have to pay a brokerage fee. Even using an online discount broker, that
means every single time you buy shares of an ETF you start off already
behind the underlying index. If you are dollar cost averaging, the
accumulated fees will *really* reduce your rate of return over time --
especially if each purchase is in the hundreds of dollars (as it probably
would be for most average investors).

In other words, for the dollar cost averaging investor who is setting
aside a few hundred bucks out of each paycheck, buying ETFs is little
different than buying a mutual fund with a front-end load. For example, an
investor who pays a $10 brokerage fee to an online discount broker to buy
$500 worth of an ETF has paid a 2 percent upfront fee. In today's day and
age, virtually nobody recommends buying mutual funds with a front end
load. But those very same people recommend ETFs. This, to me, is baffling.
I suspect this is yet another example of the brokerage industry coming up
with a new product that becomes all the rage and attracts gullible
investors who end up getting fleeced in the long run.

If an investor is looking to "change investing tactics to cut their
costs," they should become an accolyte of John Bogle and invest in index
funds such as those offered by Vanguard that do not cost anything to buy
when purchased directly and which have annual fees of less than 50 basis
points. If the investor is lucky enough to be a federal employee, the
index funds in the Thrift Savings Plan charge a paltry 10 basis points.
Now THAT'S low cost investing!

On 28 May 2004 21:10:01 GMT, mheimer[at]hearst.com (matt heimer) wrote:

- quote -

First, I paid down debt (paid off 22k in credit card debt, refinanced
mortgage to a lower rate and shorter term).

Once I knew how much I could afford to "pay" for debt, I turned around
and started paying that amount to myself (by saving/investing it). I
put 15% of my income away for retirement (between Roth and company
401k). I also save for my son (in a UGMA account and 529 plan).

Two very specific things helped me to get started investing.

DRIP/DSP plans, and the company TIAA-CREF.

TIAA-CREF helped me get started by having low minimums ($25/month when
I started, $50/month now) which included a Russell 3000 (Total Stock
Market) no-load index fund.

DRIP/DSP plans helped me to start buying individual stocks without
paying broker's fees. When you're investing $100/month into individual
stocks, even $4-$5 is too high a commission to be paying. I 'pay' for
the lack of commissions by not getting to set my buy price, but, I'm
investing such a small amount over such an expected large time horizon
that I feel confident that the 4-5% commission savings and
dollar-cost-averaging will compensate me for the higher stock prices.

Over 4 years, 22k in debt was paid down, and 40k in investments were
accumulated (almost all tax-advantaged in some way). Plus, we have a
emergency fund for...well...emergencies. PLUS, I'm paying tuition
costs (no loans) to attend college part-time while working full-time.

Gwen

"matt heimer" <mheimer[at]hearst.com> wrote in message
news:ae77d747.0405281200.3e28c805[at]posting.google.com...
- quote -

Interactivebrokers and DCA into varied ETFs such as IWM, DVY, EFA, TLT. With
5 or 6 ETFs you can have large cap, small cap, foreign and bond exposure and
pretty much own the market.

PM



======================================= MODERATOR'S COMMENT:
Please trim the post to which you respond.

Hi there.

I'm a writer for a national consumer finance magazine, and I'm working
on an article about savings strategies.

I'm interested in hearing advice or stories from people who have
changed their investing tactics in order to cut their costs. That
could mean anything from switching mutual funds to changing brokers to
rethinking your whole investment philosophy.

Whatever the case, if you've got any personal experiences to share,
I'd be very curious to read them. People who'd rather not post answers
publicly are welcome to e-mail me at mheimer[at]hearst.com. And if you
might
be amenable to being interviewed by telephone for my story, please let
me know.

Thanks very much,
Matt Heimer