Suze Orman TwitterSuze Orman FacebookSuze Orman YouTubeSuze Orman LinkedIn
View Blog & News List

Why ETFs Are The Best Choice For Your Retirement Investments

November 03, 2016 at 5:00 AM

 You know I am a big believer that a Roth Individual Retirement Account (IRA) is the best way to save for retirement. And for my money, I think Exchange Traded Funds (ETFs) are an ideal way to invest the money in your IRA.

 Just like a mutual fund, an ETF is a portfolio of dozens and often hundreds of different stocks or bonds.  In fact, some companies offer ETF and mutual fund versions of the same portfolio.

 The main difference has to do with how the share price is calculated. As you may know, a mutual fund’s share price is set once a day, after the close of the trading day, based on the closing value of all the securities in the portfolio. So for example, if you placed an order at 11 a.m. on a day when the stock markets are open, your purchase price would be based on the closing value of the portfolio (4p.m. ET).

An ETF trades just like a stock: If you place an order at 11 a.m., your trade will be processed based on the ETF’s share price at 11am. That can be a big deal if for whatever reason the markets are skyrocketing or tanking. 

The Indexing Advantage

     The vast majority of ETFs track a benchmark index, rather than rely on a manager(s) to actively choose what the portfolio owns, and when it buys and sells specific investments. Study after study has shown that over the long-term, index portfolios tend to perform better than most actively-managed portfolios. Sure, there are plenty of no-load mutual funds that are index funds. They can be a fine way to go, but for many investors, ETFs have a practical edge over mutual funds.  

My top two reasons for why I recommend ETFs over no-load mutual funds for your retirement savings:

  You need less money to get started. Most mutual funds require you to plunk down at least $1,500 or more to get started investing. But most discount brokerages only require that you purchase at least one share of an ETF to get started. That can be just $50. Maybe even less. So ETFs are a terrific way to start investing $50 or $100 (or more!) on a regular schedule: you can set up an automatic monthly transfer from a checking account into your account at a discount brokerage that is used to buy more shares of an ETF. 

  They are also ridiculously cheap to own. There are two costs of ETFs you need to be aware of. Just like a stock, there is typically a commission charged every time you buy or sell shares. Some discount brokerages charge just $10 or so per trade, but if you’re investing $50 or $100 a month that’s still way too much. The good news is that most discount brokerages offer a bunch of commission-free ETFs. So it’s pretty easy to build a diversified portfolio of ETFs and not pay a penny of commission. 

 The second fee for an ETF is the annual expense ratio. Just like a mutual fund, ETFs charge this fee to every investor. But here’s the thing: ETFs typically have some of the lowest expense ratios, often lower than even inexpensive no-load index mutual funds. There are many ETFs with annual expense ratios below 0.10%. Some even charge as little as 0.03%. I hope you realize what a huge deal that is. Let’s say you invest $1,000 in a mutual fund and $1,000 in an ETF, and both investments have an annualized gain of 5% for 20 years. Exactly the same. But the mutual fund’s expense ratio is 1% and your ETF’s expense ratio is 0.05%. At the end of 20 years your fund account would be worth nearly $2,200. The lower-cost ETF investment would be worth more than $2,625. That’s a difference of more than $400!

We can’t control how the markets perform, but we are in total control of the fees we pay to invest. ETFs are a terrific way to gain instant diversification for a rock-bottom fee.

Tag Cloud

raise insurance deductibleRevocable Living Trustlousy investmentStudent Debtsummer job match income verify retirement plan with HR or plan sponsorearn more on savings8 month emergency fundPrime Rate Increasecommitreduce interest ratedangerous retirement planfinancial argumentsFICO at least 720Financialwomen longer life spanclosing costs 2% of loanroth iradon't use allowance as bribeprotect loved ones dear suzebuy home you can affordCredit Card Rate Increasecut monthly cable billgift not loanlet them have 50% controlteens and moneyno interestlong-term care premiumsautomatic paymentswitch to roth 401(k)Student Debt Crisisback door Roth IRAanticipated salarydon't spend Wall Streetprotect and provide for minor child raising mortgage rates real estate mistakesunsubsidized Stafford loanteensletter to suzePhyllis Shelton expert long-term careunexpected expenseone credit cardno life insurance financially irresponsiblewomen outlive meneliminate credit card debthealthy retirement blood pressurecredit managementhome buying mistakesemotional stakesSuze Orman spouse Kathy TravisRevocable TrustAmy Lacyetcredit cardTelepicturesBankruptcy8 Rulesoverspend on giftsteach importance of helping othersmax benefit coveredpublic service career student loan repayment WillFinancial Awarenesssavings pleasureHDHP's are good for youprofessional advisorlife insurance name trust as beneficiary40% toward financial goalraise deductibleshome loan credit score below 740 is it necessary?AccuQuote.comMinor Children point cost offset by savingsoverspend on nights outshort term goal Roth 401(k)dream schoolAARPschool Emergency SavingsEmployer Matched Contributioncommunity bankderailed planChanging LivesGay RightsBill and Pennychildren's book8 month safety netenjoy saving debt freemoney vowsPrime Rate Rise 2015Durable Power of Attorney for Health CareLong Term Care Insurance title insuranceFinancial Solutions For Youstore credit cardsloved ones dependent on incomejuggle multiple financial goalsspring summer max employer matched 401(k) contributionMass MutualAdequate Auto and Home Insuranceborrow each year, capitalization is going to pile up employer funding HSAfinancial goal phraseJose Rodriguezidentity fraudcompare provider pricingmake saving a pleasureFederal Funds Rateinsurance mistakeUS Tax Codeage appropriate goalsshop online guaranteed level term policy20 year level term no retirement funds for down paymentinterest capitalizationconfidentbuying a carcollege graduatetraditional vs roth 401(k)kid borrow firstlive below your meansFederal Reserveconfident of solution10% donate to charityget credit cardsmall changes marriage inequalitysave moneyworst financial mistakevalue moneysocial security not going brokefull retirement ageincrease retirement savingsCPI-Wfinancial concernLegal Guardiandepreciating asset workaholicFinancial Advicepay high rate off firstMoney-Saving15-year refinance dealpermanent life insuranceschedule vacation!00% tuition paidgay marriage ban end Florida 3 savings buckets PBS Specialterm life insurancecan you afford ithealthy aging secure creditclosing disclosurehome buying budgetoverspend on dining outlower overall drug costpowerfulVeterinary Schoollong-term care gift grandchild IRA contributiondon't blow tax refundloan necessitylearn good financial choicesfraudulent returnat worst still pay 75% benefitpurely financial standpointHDHP'ssocial securitydon't charge a pennyBeautycredit utilization ratesidelinedFinal Goodbyewaive home inspection bidLifestyleUniversity of Floridabest interest ratesRetirement Savingswould you decline a bonusFICO Scoreemergency fund avoid burn outgift up to 14,000don't extend mortgage FRAthree year car loanlow-cost index mutual fundchildren under 184 Must Have Documents file asaphome related tax break bonus The Suze Orman ShowWarner Bros Television Groupalways use all paid time offretain separate credit cardsRetirement Incomedo you need life insuranceholiday spendingAmericans don't use all paid vacation timeescrowfocus on needspay interest while in schoolFixed Rate Mortgage3 step financial road mapdon't cover cosmetic dentistryHSA tax savingsreduce monthly paymentlow down paymentcompare monthly expensesNew York Lifecar buying mistakesdon't buy wantsGraceannual cost of living adjustmentzero rate transfer dealsFinancial Gift Cliffsame sex marriage band end Floridastudent loan repayment estimatorhome budget after tax costadd teenprotect your familyMarlo ThomasHolidaybe kind to yourselfFICO credit score credit card mortgageonly offered while employed debt6 month waiting periodLTChome insuranceno late fee 2016 adjust estimated taxFinancial Awareness Video Festivalbuy homesocial security never insolvent3 bucket approachLTCi ASAPhigher monthly paymentlife insuranceWashingtonlower mortgage interestFundsphysical healthretirment savingsadvice for college graduatesburn outSchool of Social Work50 over 50too expensive schoolhigher insurance deductiblemortgage disclosureMust Have Documentsreal estate marketheartachelow credit score15 year mortgagefiduciarystaycationStudent Loanbad retirement planningpercentage men widowed 75-842016 adjust withholdingFiscal Responsibilitytelevision hostdeath benefit needs for familyHigh FICO Score = Better Rate30 year mortgage doctor no longer in networkdeath benefit 20 to 25 times annual incomeNew american Dream raising interest ratescostly insurance mistakeFHA loan feespreexisting condition not covered20% down paymentbig results cost of capitalization calculatormarriage financial responsibilitytax refund fraudHDHP/HSAlow mileage discountdental insurance earn allowanceis it kind?increase emergency savingspaid in fullcar loanjanuary billsage appropriate choreHoliday Seasonexercise reguarlyInfluential Celebrityrequire chore in exchange for allowancemoney-aware childVital DocumentsretirementSuze approvedinterest on student loansInvest for savings growthExhibitionmax employee matchGay Couplesstay positiveget the most out of social security Personal Financestretch out haircut appointmentslower interest rateSatisfying10 year repayment plan commissionsPay Off Debt Before Retirementstandard rateGoodbyeCredit scoredental discount planno splurge grandchild summer job IRA contributionaccelerate dental workSave Us Moneyhealthy gumsAlarm Clockdon't ignore open enrollmentstudent loan repaymentdental savings planmortgage brokerCiti Simplicity Card insuranceno negativityhigh FICO scorerequired disclosurepay down student loan debtnear historic lowsinsurance yearly reviewautomatic withdraw to savings Holiday ShoppingARMadult childrennon conventional routewomen live longerfederal student loan deferment College of Veterinary Medicinestandard deduction Federal PLUS loanidentity theftbe good exampleopen enrollment review no private loanadjust allocations manage student loansHow To Build CreditFederal Stafford loanFree Debt EliminatorFinancial Educatorallowance taskpositivemaintain standard of livinglong term goal20 to 25 times annual incomecreate new truthpeace of mindEasy Life Insurance no apologyStock Investmentsfour steps to retirement savings special saving accountbe true to yourselflowest cost fund optionHigh Credit ScoreBanknegotiate points with bank or sellereight month living expense ritual schedulereplace permanent life insurance with termignore 6 month grace period speak new goalpaid vacationsuitableForbes Top 10get over life insurance phobiadon't defer interest paymentsGiftplanstudent loan repayment planhealthy teeth2015 financial roadmapsame-sex marriageLoveHDHP's are not badForbescredit unionAuto Savings Cory Booker20% equityHDHP One Wallet At A TimeMoney Markettax ID theftSwap Older Annuities or Life Insurance IRA contribution gifted moneypublic service loan forgiveness programknow before you oweallowancecharges on credit cardhighest possible benefitGiftsnot gender specific loan no longer than 36monthssecured cardhousing marketForeclosurecalculate dependents annual income needsunder 18 financial giftSuze Ormanno sneaking in feesdangerous money seasonCNBCprotect dependent strained relationshipincreased auto insurance premiumstudent loan debtcar leasingConventional loan PMIcontribution Financial Power of Attorneyresponsible with moneymeet monthly valentines daydebit cardstudentnot enough life insurancepay off debtraise your deductible20% down payment avoid fees19 years cash flow problemuniversal college accessSandy Hook PromiseBaby Boomersbest loan deal emergency fund savingsclosing feescollege studentprovider of financial supportfile taxes quicklymental healthquick closingLong Term Care premiumsyours, mine & ourssocial workhigh credit score discountsavingssave setup automatic savings withdrawMortgage Credit Availability Indexleave a legacydo not pay allowance for good behaviorhealthy yourefinanceCredit Card Interest Ratemultiple lenders740 credit scoreMoneypay credit debt ASAPinitial tax break Urbana-Champaignpay down car loanSuze Orman's Money Warshigh down paymentLTC shoppinghome ownershipprescription tieriffy incomepush yourself to save more for retirementSpendingface your financial fearmonthly benefit Motherbudgetbuying car 20162017 TaxesInterestcostly legal reduce withholdinggrandparent IRA contribution financial aidlower premiumYoung Adult Sandy Hook Elementary SchoolSuze changed my lifebill paying prioritiesbetter loan dealsconsider roth 401(k)family save at least $100 monthly3% debt transferred Most Influential Celebrities Listrolloverteach your child good money habitsCD'semployer offered life insuranceETF'stake actionrising home pricesincrease retirement contribution rateEric Dodge 401Kloan is giftretirement accountsTeachnew carcomparison shoppingDeath Benefitshorter payback periodmobile appOverspendingHeartfinancial fearsorigination feesloan big picture better loan ratesFinancial Systemovercome financial fearsfinancial independencemortgagepremiumpay more than minimumdoctors in networkrepay student loansincentives for health care wellness screeningbecome member credit reportultimate compounding giftbad decisionsco-sign cnbc alarm clockRichpaying for collegereferrals Inflation Benefitbetter termsfocus on new truth Post-Divorceonly refinance if it paysaffordabilitybalance transfer kids schedule paymentsswitch to spouse coveragehealthy retirement weightterm insurancealternative FICO scoreengaged in financeshigh premiumsresponsibleborrowing plan mortgage interest tax deductionwives should be involved in retirementARM Cautionhigh deductible health care planrefunddon't do five year car loanSelectQuote.comis it necessaryStaffords this year have a fixed 6.8% interest rateNewtownone annual feeback-to-school budgetbuy down 2015 record year car sales401(k) ContributionsSuze is my biggest mentorLong Term Care shoppingAshley SpringerInfluentialsno fee transfercut monthly cellular billverify wellness screening and programsSelfishCombo Insurance Productshome buying seasonno waiting periodFinancial CliffAARP Social security calculatorgraduationcommunity collegepercentage of women widowed 75-84successcouple financesCommencementapproved medical 100% tax-freeno tax on withdrawlsis it true? contribute household expenses itemized deductiontaxesbreakdown projected monthly housing costkeep a scheduleproperty taxmonthly dental insurance premiumCivil RightsUniversity of Illinoispay 100% cashSuze Orman Scholarshiplong term careretirement planfinancing car rent vs buywrite new goalaffordable premiumwomen long term careno private loansCOLAbest interest of investorautomate student loan paymentsCommunication Skills president Obamadon't derail retirement savingslower rateget health insurance


View Blog & News List
People First. Then Money. Then Things.
Connect with me on Facebook Connect with me on YouTube Connect with me on Twitter
© 2017 Suze Orman Media Inc. All rights reserved.
 
 |  Search  |  Sitemap  |  Privacy  |  Terms
Sign Up For E-mail Offers
Open Panel
Close Panel