You plan to invest $100 per month in an S&P 500 index fund for the next 40 years, and are trying to decide whether to use an ETF or an open ended mutual fund. Which option would be the most advisable? (assume that the ETF and open ended index mutual fund have the same expense ratio, but the broker will charge you a $5 commission for each trade, while the mutual fund will not charge you a commission if purchased directly from the mutual fund)

Question

Jeramiah Bradley

Business

16 September, 23:45

You plan to invest $100 per month in an S&P 500 index fund for the next 40 years, and are trying to decide whether to use an ETF or an open ended mutual fund. Which option would be the most advisable? (assume that the ETF and open ended index mutual fund have the same expense ratio, but the broker will charge you a $5 commission for each trade, while the mutual fund will not charge you a commission if purchased directly from the mutual fund)

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Answers (1)

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Lia Horn · Answer 1

Answer: Opening an account with a mutual fund family, then investing in an open ended S&P 500 index mutual fund each month.

Explanation: The problem with the ETF is the "commission" that wil reduce my investment in $ 5 each month; my investment will be $100-$5 = $95 which is less than $100 each month in a mutual fund.