anon_investor wrote: ↑
Fri Jun 28, 2019 8:13 am
I got this annoying popup (but only after I saw this thread!)... Mutual funds are better for my buy and hold investment strategy. The fact that every last penny can be invested makes mutual funds better than ETFs for me, which trumps the current 1 basis point difference in expense ratio.
If I ever want to do tax loss harvesting in the future, only then would ETFs make any sense for me.
Let's do the maths on this, because honestly this last penny stuff is overrated and misleading. (If you really care about the last penny, then you could withdraw the difference to buy another unit from your emergency fund, and repay it the next investment cycle... It's a complete drop in the bucket.)
With ETF's, you'll have an average of something like $75 uninvested in the long-run (assuming e.g. VTI, currently trading at $150 - but most other ETF's such as VT seem lower - and then take half the trading price as the long-term uninvested amount, assuming you invest e.g. on a monthly or quarterly basis). Let's be optimistic, and take a 10% yearly return. [In reality my average uninvested money is lower, but that's because I have some SCV and split the world up into regions. My smallest holding trades at around $40, so I have an average of $20 uninvested over time.]
With 10% return, on tthat $75 you miss out on an average return of $7.50 per year. (But you can still earn interest, and those returns aren't realistic anyway, so the actual loss of return will be less than $7.50.)
One basis point per year costs you $7.50 on every 75k in assets invested.
For beginning investors, indeed, the last penny factor trumps the 1 basis point (not taking into account that you could save just as much by drinking 1-2 fewer coffees per year). For most people here, I doubt that this is the case.