I’m sorry to hear about your job loss. I sincerely hope your search goes quickly and smoothly.

As to rolling over a 401(k), I’m of the opinion that it’s almost always a good idea. (Though there are a few exceptions.)

For reference, I’m not trying to say that ETFs are always the better option, just that they can be, depending upon your circumstances (and, in my opinion, that includes some circumstances in which the investor is DCA’ing).

A comparison of Vanguard ETFs vs. open end funds shows that you’re saving 10-15 basis points annually by using ETFs.

So if you’re looking at an investment of $400 or so, your break even point is roughly one decade. Anything longer than that, and ETFs are probably going to cost less. Anything shorter, and open end index funds are better.

If you’re looking to invest in 4 funds, with small monthly contributions ($100 each, let’s say), then yes, open end funds are certainly the better option.

On the other hand, if you’re putting $400 into one fund, and your holding period is likely to be 30+ years, then ETFs are probably the better choice.

If you’re somewhere in between, then it’s probably a wash (or quite close), in which case I’d go with the open end funds simply for convenience.

Let’s consider that I have decided to use DCA and want to maximize my IRAs by contributing equal amount each month. Thus I will be contributing about 416.67/month. Even if I take the easy way out and only invest in a single ETF, my trade commission is similar to paying 1.08% load (Zecco) or 1.19% (TradeKing) . Ignoring time values of money, that would be about additional 0.1% each year if spread of a decade (would be more if I consider time values of money). Granted if you spread over two decades, it is even lower.

But how about dividend reinvestment. Quick check on Zecco, it does dividend reinvestment, but I believe with both Zecco and TradeKing, you can’t have fractional shares, thus not a full reinvestment. What if you decided on multiple ETFs on your account and still want to contribute equal amount monthly? And if you have multiple ETFs in your IRA, you will have to start thinking about trade commissions if you are doing rebalancing.

Overall, I think if you want to use DCA, mutual funds would be a better option. If you always plan to invest your IRA contributions each year in lump sum amount, then I would consider ETFs.

GoYanks and Mr. Bee: I certainly hear you on the convenience of regular open end index funds for automatic investment.

On the other hand, if your time frame is a decade or more, it doesn’t take very large monthly investments in order for ETFs to cost less (even including bid/ask spreads and commissions).

Note that I said that most probably you will not be able to buy fractional shares and reinvest dividends. You can in fact buy fractional shares and reinvest your dividends with sites such as BuyandHold.com or Sharebuilder.com.

I think ETFs portfolio is great when you are investing a big lump sump amount once, like rolling over old 401k to an IRA, but for investing at a regular interval – Vanguard index funds are the best!

If anybody else has info regarding other discount brokerages with whom they have an IRA, please let me know and I’ll add it.