Ron Lieber of The Wall St. Journal (sub. req.) looks at the pros and cons of holding ETFs versus index (mutual) funds in a retirement portfolio, concluding that "for now, it appears ETFs could yield thousands of extra dollars." Mr Lieber’s argument is based on two scenarios analyzed by The Vanguard Group:
Total Stock Market Index Fund: Expenses of 0.19% (0.1% for investors with more than $100,000 in the fund or 10 year alumnae with $50,000). Total Stock Market ‘Viper’ ETF (VTI): Expenses of 0.07%
Assuming one-time purchase and exit expenses for the ETFs, 8% annual returns and no additional investments:
In the first scenario, an investor with $150,000 to invest at once and who is 20 years from retirement would end up with $686,310 in the fund and $689,141 with the Viper, for a difference of $2,831. In the second scenario, someone 35 years from retirement rolling over $50,000 accrues $709,736 in the fund and $721,428 with the Viper, for a difference of $11,692.
Mr Lieber does provide some warnings for those choosing the ETF route, however: Investors should avoid trading, as each trade adds commissions. Additionally -- unlike index funds -- each withdrawl also incurs commissions, while selling off in one shot can shoot the investor into a higher tax bracket.
The Problem with Vanguard VIPERs ETFs All articles on Total Stock Market ‘Viper’ ETF