An ETFs acts like a mutual fund index. In fact, in may even suggest that it does the same thing. But the ETF may have what is known as a tracking error. This can come due to the attempt by the mutual fund manager to replicate the index they are tracking. The problem arises when they buy, based on weight (a term that refers to the percentage of the portfolio a certain company may hold based on its size). This generates higher fees as a result making the index fund more attractive (particularly if you are focused on the fee aspect of the investment). Granted, the fees will be higher in an ETF that replicates but the tracking error will be less.
Then there are the optimizers, slicing and dicing the index to suit a particular need. These cost more and in many cases are impossible to compare. Once the index is divided into subsets, the ability for the investor to make assumptions based on how they will perform are rendered worthless. While some mutual funds are difficult to compare to index funds, ETFs, which tout themselves as a the cheaper, actively traded cousin shouldn’t be. More at Target2025.com
Meg Green of the Miami Herald fielded a question about mutual fund performance from a 62-year-old retiree. His question is often asked by current investors, soon-to-be retirees and current retirees and those of who write about this topic always struggle with the answer.
Her answer kept to the basics but did little more than suggest an over-the-counter solution for an ongoing condition. That’s not her fault; it is an industry-wide problem that offers little in the way of a concrete method of determining how a fund is doing. In this case, the person asking owns a conservative investment portfolio, at least according to the query, and wants to know whether his return is acceptable.
The best line in Meg’s answer: “But little in investing is ‘pure’, or totally style specific.” Read more here from Target2025.com.
Are you fond of making assumptions? Not the kind of assumption that suggests you know what you will do tomorrow or the next but sixty, perhaps seventy years done the road. Can you create a retirement plan for your grandkids?
The assumptions you make about how much money you will need in
retirement are probably the most difficult exercise in the whole of retirement planning. The unknowns are so numerous that simply thinking too much about it gives many people the incentive to simply ignore the question. Taxes and inflation play a role in how much money we will need along with the condition of our health, our portfolios and our living arrangements. Who could possibly guess with any accuracy what those costs will be?
Yet, some of us can with certain investments. If you can wait until you are 70 1/2 years-old to begin taking your distributions from an IRA, and you take only the minimum amount needed, you may be in a position to make that IRA last much longer, across generations. Called a Stretch IRA, the sort of planning can create untold wealth for a child or grandchild.
