As a rather new and young investor would it be more advisable to invest my money on low-cost index fund or ETFs? - Seedly
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Asked by Anonymous

Asked on 04 Mar 2019

As a rather new and young investor would it be more advisable to invest my money on low-cost index fund or ETFs?

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Richard Woon Tian Jun
Richard Woon Tian Jun
Level 6. Master
Answered on 10 Mar 2019

Honestly if either one is fine - ETFs provide the liquidity that low cost index funds don't provide, since ETFs trade like stocks while index funds only allow you to trade at the end of the trading day. Not only that ETFs barrier to entry are lower - you can get a share of S&P ETF (SPYDR) for around 276 USD, while the Vanguard 500 index fund investor class min. investment amount is $3,000 USD. So if you have less than a 3000 and wish to track the market index and have a fully diversified portfolio, then ETFs will be your only option to do so.

However, index funds usually allow shareholders to efficiently do dividend "drip investments" meaning that you can automatically reinvest your dividends that you recieve back into the fund, commission free. Compared to an ETF, this means that if you are unable to have equivalent dividend payout to buy a share, you'll have money lying around not working for you, but index funds trump in that aspects.

So: if you have enough capital, go low cost index fund, put auto reinvestment of dividends, and wait for your money to grow for you. ETFs require abit more micromanagement with the dividends and commissions, but it is a easier place to start with lower capital.

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