Well, to a great extent this isn't a debate between MFs and ETFs but active management vs indexing (since the overwhelming majority of ETFs are designed to match an index). But if the argument is between a regular Vanguard index fund and a Vanguard ETF that tracks the same index, the reasons for going with the MF is that you don't want to be bothered with placing stock-like trades and 2, you don't want to pay brokerage commissions (although a number of online brokers offer certain ETFs without commissions)
Are there any actively managed funds in particular that you are fans of, Manny and Nellie?
We have 25 in fact--the Kip 25.
Exactly. I own a number of the K25 funds in my IRA and in my 401K
Of course :). I was just curious about any standouts.
Alright, here's our next question from JR
I'm a big fan of two Fidelity funds--but there are others I like as well: Fidelity Contrafund and Fidelity Low-Priced Stock (I don't actually own those funds)
If it were my emergency fund, I would keep it in cash, but Manny may have other thoughts.
The managers of both Fido funds Nellie mentioned are brilliant. I think the key issue to watch with both funds is asset expansion. At some point, they just might get too large to manage efficiently.
Any thoughts for JR, Manny?
Re JR's question, it's all about risk vs reward. In the wake of its 2007-08 disaster with Fidelity Ultra Short Term Bond, Fido launched a fund called Conservative Bond. It's ultra short and ultra high quality. It yields 0.6% or 0.7%, something like that. Is the extra risk, which should be pretty minimal, worth it for 0.6 to 0.7 point of annual yield. You could look at Fidelity Floating Rate. I think it yields more than 3%. But the stuff it owns is kind of junky. If we have a repeat of 08, where just about every bond that didn't have Treasury in its name froze up, you could see another double-digit loss. That said, you can't go through your investing life expecting a repeat of 08. I think it was a once-in-a-generation event
Let's hope so, Manny. Thanks for the great recommendations.
Here's our next question from Chris. You touched on ETFs vs. MFs earlier, but Chris's question is a bit more specific.
I should add that Vanguard offers a short-term corp bond ETF (VCHS). It yields 1.57%. Avg credit quality is A; avg maturity is 3 years. Again, it's risk vs reward
Manny, can you take this one from Chris?
Blackrock, of course, owns iShares. Again, if your choice is regular index mutual funds vs ETFs, you have to decide first if you're comfortable placing trade orders (I gather you are if you're experienced) and then run some numbers. If the ETFs you buy are cheaper than the index funds and if you don't have to worry about trading commissions, then the ETFs would seem to be the way to go
Great advice. Thanks, Manny.
I would add that the biggest knock with 401K plans is the access to a range of investment choices--most of them offer limited choices. If your plan allows you access to many ETFs, that's great.
Oddly enough, when Kiplinger's launched its 401K plan in the mid 90s, we deliberately tried to hold down the number of investing choices in order to avoid confusing employees, not all of whom are investing geeks. My, how the world has changed!
We actually have a question from RobertB about the lack of diversity in his 401k plan
Interesting, Manny. I can't imagine that now :)
Robert, Will the Wells Fargo funds carry over into the new plan? Without more information on what funds are offered in the Fidelity plan it's hard to give more specific advice, but if you've left the family-owned company, rolling over your 401K money into an IRA would indeed give you access to more investments--stocks, bonds, funds and ETFs.
I meant broken record. Typing faster than I think
I was going to say, never heard of that one Manny :)
The all-time mixed metaphor?
I think we can make it work, Manny.
Alright, here's our next question from Nate. This one should be easy, since I know you're both fans of several Vanguard funds.
Can you post the link for "Seasoned Funds Break New Ground?"
There I go again. I meant "Seasoned Pros Break New Ground."
Vanguard is well-known for its low-cost funds--its founder Jack Bogle was famous for a saying about it (I believe Manny knows it off the top of his head).