A good part of the reason Vanguard doesn’t have a micro-cap fund is that it would just be too large to run effectively. The closest thing to a truly decent micro-cap fund was the DFA small company index which tracked the 9th and 10th deciles of the market. I think the minimum on that was $1 million and even then I believe you could only get it through DFA registered advisors. A lot of institutions used that for their exposure.

The micro-cap ETFs are all garbage. They are hugely overweighted to financials and most of the stocks overlap with the bottom half of the Russell 2000 anyway… I remember reading that something like 70% of the Russell Micro-cap indexes weight overlapped with the Russell 2000 index.

A good micro-cap “index like” fund is Bridgeway. It is something both Jonathan and I own and gives you good exposure to the smallest stocks. Royce has some decent funds as well.

Full disclosure, my job is raising money for institutional micro-cap managers. You can rest assured the institutions run into the same problem you face. It’s nearly impossible to find a good micro-cap manager who isn’t closed, (or who should be!) Many of the institutions don’t bother with the asset class because there is too much effort involved for the quantities of money they can invest. It is one area though where the returns have historically been appealing. Especially coming out of recessions.

Vanguard requires a separate account since you are trading the Vanguard ETFs on the open market. You can buy/sell any other stock with that account as well, so I understand why they would separate it. It’s unfortunate thought that they don’t provide you with a service that shows your combined assets to assist you with asset allocation.

One problem I’m running into with Vanguard right now is my accounts there are a complete mess and hard to keep track of. If you have an IRA there for example, and you want to trade ETFs, AND buy index funds as well, you have to have TWO different accounts. I have the following accounts at Vanguard: SEP-IRA, traditional IRA, non-deductible IRA (to be rolled over in 2010) a ROTH IRA and a taxable account. Now multiply all these x 2 accounts (One for buying funds, and the other a VBS account for buying stocks) and I have 10 different accounts at Vanguard. It makes asset allocation a nightmare!

I’m honestly considering switching to Schwab as I can buy Vanguard ETFs there anyway.

I have for years told people the only place to go if they wanted to invest was Vanguard. Alas, they are making it difficult for me to still make that recommendation. (Although they do still have the best funds…)

However, if my taxable holdings got large, I would consider moving to ETFs for the price advantage. On top of lower expense ratios, I get annoyed at some of the purchase and redemption fees of some Vanguard mutual funds (i.e. Emerging Markets, FTSE All World ex-US.) which don’t apply to their ETF equivalents.

“#I n general, the structure of ETFs tends to avoid the kind of outright selling that would trigger undistributed capital gains and other IRS nightmares. To understand why, think back to the ETF structure. For every ETF seller, there’s a buyer.
# On the other hand, if a flood of investors decide to dump a mutual fund, the fund may need to sell the underlying holdings in order to raise the cash to pay out, and that would bring Uncle Sam with hat in hand. ETFs may also have to drop a few schillings into the taxman’s cap, for instance, when the underlying index is changed.
# Keep in mind that the traditional fund industry and the ETF industry disagree on the extent of the ETF’s advantage. Of course, they’re competing for your investment dollar, so you should expect squabbles. Still, according to published reports, the Barclays iShares S&P 500 ETF made capital gains distributions while the Vanguard 500 mutual fund did not..”

–http://www.fool.com/etf/etf02.htm

ETFs are better for financial advisors because they can charge 1% management fee instead of simply taking the .2% commission for selling vanguard funds. Brokers like it because it generates more trading fees for them. ETFs are more hype than anything else, a lot of their supposed “benefits” are exactly the same as the benefits of index mutual funds. Publishers/Content providers (CNBC,blogs,etc) promote them because ETF funds are willing to pay to sponsor reports on ETFs and buy ad time to promote them with a portion of the extra fees(If you don’t believe me count the number of ETFs vs Mutual Fund ads you see when you watch TV or go to financial websites and check out the ads). ETFs also make stock exchanges more money too and market makers get another asset to collect spreads on.
The only real advantage for consumers that buy ETFs is that there is more variety and that you can buy and sell them at all times of the day.

Vanguard ETFs vs Mutual Funds Calculator:
https://personal.vanguard.com/us/faces/JSP/Funds/Tools/FundsToolsEtfCostPurchInfoContent.jsp

The difference between the two ranges from negligible to favors mutual funds. .03 spread will be most certainly be higher if you use a $0 trade broker as I pointed out above

Don’t get me wrong I don’t think ETFs are bad. I am not some fringe conspiracy theorist, but at the same time seeing the same inaccurate and shameless pro-ETF BS time and again gets annoying. It is more annoying when people start to buy into it.

I’ve thought about buying a bond ETF before, but only because I already have a brokerage account. If you already have a Vanguard account I would keep it, unless you have an actual complaint such as a lack of diversity.

1. Don’t use Zecco if u intend on having a margin account.

2. Wells Fargo short term muni fund. VERY stable share price & pays more than taxable funds!

Just like single bonds, the market price of your bond fund will fluctuate due to interest rate changes of the market. Matching maturities exactly is more important if you are trying to match cashflows, not as much if you are maintaining a long-term portfolio, where maturities still help in bond funds to determine how volatile your values will be.

If I was going to buy bonds, I would always buy them through a fund unless they are Treasury bonds which have as close to no default risk as possible.

I am looking for a portfolio mixture (i.e. asset allocation) that is both rock stable and a better than savings accounts rate in this bear market.

Does any one have some more info to share?

This is from 2006 so it is a bit out dated (I don’t think this is the same article that I originally saw, but it has the same result so w/e):
http://www.businessweek.com/ma....._spr_tools

I have a pension plan, a 457 retirement plan, and some individual stocks. I need to start a 529 plan for my kids. I am unclear as to where I could fit in investing in ETFs.

Also, the article contained this line: “You pay a commission on each trade, so ETFs aren’t an ideal place to sock away small amounts of money each month. But they’re perfect if you’re investing a lump sum, such as an inheritance or a 401(k) rollover.” So it is feasible to sock away small amounts with Zecco free trades, but how long before they stop offering free trades (or raise the minimum account amount), and what do you do then?

I agree with cs — 40%’s a bit conservative. real estate seems a bit under represented (I usually see 10-15%).

Just cannot get my brain around the structure and the worst-case scenario possibilities

If you treat this as long term investment and not trade frequenty, the cost impact is pretty low.

I mean this unsarcastically — keep learning. Your understanding of ETFs is not quite right. ETF shares are created and destroyed as stock, so no buying or selling of stock takes place within the ETF. This makes ETFs very efficient. What happens is that a large institutional broker may buy enough stocks to create an ETF “creation unit” (a creation unit is just a specific large number of shares). This buying happens outside the ETF, so it doesn’t matter to you. Then they convert it into ETF shares. They’ll do this if the bid/ask spread is in their favor to do this. They’ll do the opposite if the market is pricing the ETF lower than the individual stocks. This keeps the ETF value fair, and provides liquidity, and keeps management costs of the ETF down.