Patrick Fisher
New member
- Joined
- Jun 9, 2017
- Messages
- 9
Hi there, this is my first time posting on the forum.
I'm fast approaching 30 years old and have recently been thinking about what will be the most effective way to invest for my retirement. For the sake of this math question I will have only two investment options: I can invest in a mutual fund or an ETF. Let's assume that the stock holdings in both the mutual fund and the ETF are identical. Let's also assume that we know that the value of the stocks held by the mutual fund and ETF will increase in value by 8% annually. I have decided that starting on my 30th birthday I will invest $500 every month until I turn 65.
The advantage of investing in the mutual fund is that I can buy into the fund without having to pay a trading commission. The disadvantage of investing in the mutual fund is that I will have to pay a 1.5% management fee, bringing my effective returns down to 6.5% from 8%
The advantage of investing in the ETF is that the management fee is much lower at 0.06%, bringing my effective returns down to 7.94% from 8%. The disadvantage is that I will have to pay a trading commission of $10 every time I want to buy into the fund.
I've decided that in order to get the best returns on my investment that I should buy into the mutual fund every month, and then transfer the money into an ETF once I have X number of dollars in the mutual fund holdings. How do I calculate the value for X in order to generate the most profit?
Thanks!
note: I know that stock market returns aren't predictable and consistent like I have suggested in the problem, but for the sake of this problem we are going to pretend that they are. I also know that it is risky to put all of your retirement savings into the stock market, but we'll pretend that is my plan for this question.
I'm fast approaching 30 years old and have recently been thinking about what will be the most effective way to invest for my retirement. For the sake of this math question I will have only two investment options: I can invest in a mutual fund or an ETF. Let's assume that the stock holdings in both the mutual fund and the ETF are identical. Let's also assume that we know that the value of the stocks held by the mutual fund and ETF will increase in value by 8% annually. I have decided that starting on my 30th birthday I will invest $500 every month until I turn 65.
The advantage of investing in the mutual fund is that I can buy into the fund without having to pay a trading commission. The disadvantage of investing in the mutual fund is that I will have to pay a 1.5% management fee, bringing my effective returns down to 6.5% from 8%
The advantage of investing in the ETF is that the management fee is much lower at 0.06%, bringing my effective returns down to 7.94% from 8%. The disadvantage is that I will have to pay a trading commission of $10 every time I want to buy into the fund.
I've decided that in order to get the best returns on my investment that I should buy into the mutual fund every month, and then transfer the money into an ETF once I have X number of dollars in the mutual fund holdings. How do I calculate the value for X in order to generate the most profit?
Thanks!
note: I know that stock market returns aren't predictable and consistent like I have suggested in the problem, but for the sake of this problem we are going to pretend that they are. I also know that it is risky to put all of your retirement savings into the stock market, but we'll pretend that is my plan for this question.