EASPilot

I'm no money guy, but I've never heard of an ETF in a 401K. Of course, this is only my second job with a 401K, so I don't know what normal is. Is this a good or bad thing?

BTW...my only choices are ETFs.

HSLD

A 401K is simply a container for investments, you can have just about any mix of investment types inside the plan. ETFs and Mutual Funds have similar cost structures although ETFs have traits of an equity (can be sold short, etc) while offering tax advantages in some cases. If you are restricted to only having ETFs buckets available in your 401K, be sure to read the prospectus and know that the fund manager's goals are (good advice for any fund investment!). The best bet is seek out a qualified financial planner and get some guidance for your specific financial goals/needs.

gringo

An ETF is effectively the same thing as a mutual fund, just much much MUCH cheaper.

You can indeed trade them all day long as you would a stock, but since you're in a 401k most of your activity will be of the simple (yet stupidly effective) "buy and hold" variety.

The real question will be which ETF's you choose. That's where a financial advisor comes in handy. Or at least a good book on asset allocation.

But as far as you're concerned, an S&P500 mutual fund is exactly the same thing as an S&P 500 ETF; the difference is the ETF typically has an expense ratio (cost) of less than 0.1% (I believe Vanguard offers one for 0.07%) and the mutual fund will cost you 0.5% or more annually. (My 401k for example charges 0.6%).

While that might not seem like a lot, the reality is once you have significant money invested (say, $100k or more) those fees really start to add up, to the point where you might have a good $50k less in your retirement account by the time you're ready to retire.

Bottom line; your employer is awesome for offering ETF's in your 401k. Most 401ks only offer overpriced mutual funds that will really hurt you in the long run.

FYI- a good place to start is "The Little Book of Common Sense Investing" by John Bogle. It's an easy read, and it will save you thousands of dollars in the long run. Highly recommended.

Winged Wheeler

ETFs are a great way for you to gain access to the gains to be found in equities while avoiding some of the costs of mutual funds.

HSLD is correct--professional advice is a good idea, even if you only go once. Make sure you are getting fiduciary advice. It is possible that this will be available at no cost through the brokerage house that sponsors your 401k--ask your HR.

See if some of the ETFs in your plan can be traded at no cost--many times fidelity or vanguard, etc will allow you to buy and sell some of their own ETF products without paying a transaction fee--ask.

You should not invest in things you don't understand--commodities, currencies, leveraged, and inverse ETF products are relatively expensive and risky. Stick with an inexpensive, broad index fund like VTI or IVV for stocks and something like AGG for bonds if you want bonds.

ETFs are easy to buy and sell. You should not be trading more than a couple of times/month--don't let the ease of trading tempt you into doing to much. Your own psychology will lead you to sell low and buy high. Don't trade too much. You should have a simple rule to follow. Something like:

--buy and hold your index fund(s). keep buying every payday and dollar cost average in (easiest)

--quarterly rebalance. adjust your holdings to regain the ratio of stocks:bonds that you started with. (easy)

You will see promotions for exotic ETF--don't go there. they are expensive and risky.

See if a ROTH IRA is possible. If it is to your advantage tax-wise, you will be happy with it down the road. Ask HR/financial advisor.

DON'T TRADE TOO MUCH!
BUY A LOW COST INDEX FUND!
MAX OUT YOUR 401K OPPORTUNITY!
DON"T LISTEN TO FINANCIAL ADVICE THAT YOU ARE NOT PAYING FOR (this includes tv and the guy that you are flying with).
good luck

WW

UASIT

You can do a self-directed IRA / Roth IRA...I'm leaving my current contractor job after 8+ years for a federal government position and instead of having my 401K tied up in TSP I'm investing in stocks thru a self-directed IRA/ Roth IRA. I'm still doing TSP for the match and to minimize my tax burden.

Marvin63

ETFs are a fantastic way to invest. There is an excellent book by Alexander Green called The Gone Fishin' Portfolio that outlines an excellent long-term investing using ETFs. You can also find a summary of the method at Airborne Income.

DAL 88 Driver

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