In my previous post this month I described my quest for inexpensive investing. What I actually arrived at was free trades. Now, what to do with them?
I decided to stick with ETF's as opposed to mutual funds for reasons of lower costs, and somewhat better tax efficiency. Also, there's no minimum initital purchase for ETF's -you just have to have enough money to buy in whole shares (rarely more than $150-$200 a share, and most of the time much less) in contrast with mutual funds, where initial investment might be anywhere from $2000 and more.
By reading the books of financial academicians (those that have nothing to sell to you), I started to understand that it's kind of hard to beat the market in terms of your real returns. It's very difficult even for professionals to do it. So to get a broad exposure to the markets, I decided to go with index ETF's. They provide as broad an exposure as the index allows it, at the same time, it's not actively managed, i.e, they don't constantly buying and selling underlying securities. They do that only if the proportion of such securities or the securities themselves change within the index. All this would keep the expenses low.
Besides, you can buy and sell ETF's throughout the day. For mutual funds, it's only once a day at the closing.
So, will go with index ETF's.