Where to Stash $5,000: ETF or Mutual Fund?

One big deciding factor is how often you're putting money in.


If you're thinking about taking the plunge into exchange-traded funds, the biggest question you should ask yourself is how frequently you plan to contribute. That's what Jim Wiandt, editor and publisher of the Journal of Indexes, tells me. 

"A good general rule is if you're putting in $5,000 or more, you're often going to be better off with the ETF structure," says Wiandt, who is also publisher of IndexUniverse.com. That's because transaction fees add up, especially when you're contributing in regular intervals.

With ETFs, there is no minimum investment, so you can buy a handful of $15 shares if you choose. You could even buy a single $15 share, but you're going to shell out roughly that amount in brokerage fees for the transaction. The idea is that the more money you contribute, the milder the brokerage bite. And these days, you can find a discount brokerage that charges low--or no--fees. But to get the no-fee benefit, you have to either maintain a set balance (as with Zecco), or have a particular amount in bank deposits or a combination of bank and loan deposits (that's the case at Bank of America and Wells Fargo.)

You can read about my experience with ETF investing here.