Comments on: 11 Tips for Selecting Mutual Funds

By: kenyantykoon

kenyantykoon — Fri, 06 Nov 2009 13:18:47 +0000

i am kind of against mutual funds because of overdiversification that i fear will eat away at my returns. But since i want to invest in precious metals, investor gurus say that the best way is to do so through mutual funds to avoid too many fees and storage costs. so these pointers will come in handy

By: GoYanks

GoYanks — Fri, 06 Nov 2009 03:27:53 +0000

Mike, You are not missing anything. There is no bonds ETF. Only 8 equity ETFs are planned.

By: Tom @ Canadian Finance Blog

Tom @ Canadian Finance Blog — Thu, 05 Nov 2009 22:22:20 +0000

Good points Mike. I’ve become obsessed with low expense ratios. I even invested directly in Canadian REITs because the 0.55% MER was too expensive in my view. Plus, 4 REITs gave me about 60% of the weighting of that index.

That one aside, I love low cost index funds and ETFs, won’t touch an active mutual fund ever again!

By: Mike

Mike — Thu, 05 Nov 2009 21:39:50 +0000

GoYanks: My understanding is that as it stands right now, yes the current lower tax rates for LTCGs and dividends will expire at the end of 2010. After that, dividends will be taxed as ordinary income, and LTCGs will be taxed at a max rate of 20%.

So yes, the benefits gained by tax-sheltering bonds relative to stocks will decrease. Whether it continues to make sense would then depend upon how an investor’s tax bracket compares to the LTCG tax rate, and what portion of total stock market return you expect to come from capital appreciation rather than dividends.

Regarding Schwab’s new no-commission ETFs, I haven’t looked into them too heavily yet. But the ERs are nice and low, and you can’t argue with a $0 commission. Also, am I missing something, or is there no corresponding no-commission bond ETF?

By: GoYanks

GoYanks — Thu, 05 Nov 2009 21:25:45 +0000

Correct me if I am wrong, but doesn’t the lower long term capital gains tax rate sunset in 2010, unless congress extends them? If so, then for younger investors who are investing for loooong term tax sheltering bond or stock funds shouldn’t make much difference.

Mike, on another note, what are your thoughts on the new No Commission ETFs from Schwab?

By: Dylan

Dylan — Thu, 05 Nov 2009 19:47:08 +0000

I’m with Mike on the sheltering the income producing stuff like bonds in an IRA.

Not having to recognize capital appreciation until it is realized makes the appreciation of stock index funds essentially tax deferred. I suppose if someone is using higher turnover, actively managed funds, they might be better of in an IRA.

By: Rick Francis

Rick Francis — Thu, 05 Nov 2009 19:28:42 +0000

Mike,

Thanks for the answer – I feared it was too good to be true.

-Rick

By: Mike

Mike — Thu, 05 Nov 2009 17:33:23 +0000

Good question, Rick.

The income from a bond ETF, however, will still be taxed at ordinary income tax rates. It’s only the capital appreciation that would be particularly tax-efficient.

By: Rick Francis

Rick Francis — Thu, 05 Nov 2009 17:04:42 +0000

Mike,

Are bond ETFs a tax efficient alternative to bond mutual funds? If so couldn’t you have you cake- tax efficiency and eat it too no need to put bonds in an IRA?

-Rick

By: Rob Bennett

Rob Bennett — Thu, 05 Nov 2009 16:40:19 +0000

It seems to me that it would be simpler just to invest in a broad index fund and set your own allocation rather than trying to find a mutual fund that goes with an allocation of which you approve. Non-index mutual funds seem to me to be a product in search of a purpose (although I can think of a few rare exceptions to the general rule).

Rob