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403bidiot

Frequent trading policies; Best Fund Family?

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Mr 403bidiot

Both Vanguard and Fidelity have a stated  philosophy of no frequent trading but in a managed fund that may vary depending on the fund.Also ETF(Exchange TRADED  Funds )might be something you might want to stay away from.The easiest way to avoid the world of frequent trading is to buy index funds which have a buy and hold philosophy through all market conditions.

Tony

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Frequent trading is widely understood to be a poor long-term investment strategy, so Tony (and pretty much everyone here) will advise you to steer away from it.

That said, if you must frequently trade funds, ETFs (Exchange Traded Funds) make it easy: they trade just like stocks and depending on where you hold your account, you can trade one or more families of funds with no transaction fee.

This is, by the way, the reason John Bogle dislikes ETFs--they make it too easy to trade.

If you are wondering about the evidence in favor of passive, buy-and-hold investing, look for articles or interviews by Bogle, Burton Malkiel or Charles Ellis (for example: I could list many more names, but those guys will get you off to a good start).

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If I can add, frequently traded funds can  put out an enormous amounts of taxable capital gains and dividends which will increase your tax bill. Index funds are tax efficient because of limited buy and selling. I made the mistake years ago of buying a very active managed small cap fund recommended by my fake news advisor at the time. I purchased it in a taxable account. It was a horrible mistake. Every year because of all its buying and selling activity both because of frequent  manager buying-selling-trading and fundholders redemptions, I got stuck with huge dividends and capital gains that put me in the "I owe the IRS"  category year after year even when the fund was doing very badly. It may seem that its a good thing if a fund puts out capital gains and dividends but if you have to pay taxes on those gains yearly it can hurt. I had to wait for the market to tank in order to get rid of it . Exchange traded funds (ETFs) are similar to mutual funds in many ways, but when it comes to capital gains they tend to be more tax efficient so in that respect Whyme might have a point but both me and John Bogle don't care for them .Of course in a tax advantaged account that doesn't matter as much . Still be careful in a taxable account.

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I don't really know what I'm talking about because I have no interest in ever owning an ETF, but I was under the impression that, from a taxation point of view, ETFs and mutual funds are the same. I was under the impression that both an ETF and mutual fund will have a tax liability that is directly tied to their turnover rate and just as a mutual fund can be tied to an index (and thus have low turnover) so to can an ETF. I might be totally wrong, I'm an index fund guy, but that is how I thought it worked.

@403bidiot, out of curiosity what are you up to that is causing high frequency trading restrictions to give you trouble? If you're 'day trading' then ETFs are the answer and I won't try to beat you over the head with arguments/data about why that is a poor approach because I assume you're well aware and just disagree with me. However, if you're up to something else then there might be a better way forward than ETFs?

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I guess I am confused. What exactly are we talking about when we talk about frequent trading and what exactly is 403b Idiot asking.. Are we talking about the investor buying and selling his/her funds constantly? or a mutual fund manager who buys and sells stocks  to sell his losers and lock in his winners? Either way it producers tax consequences

I prefer funds that don't constantly buy and sell securities. That led me to Index Funds which are a more of a buy and hold situation and more tax efficient. 

So does 403b idiot (You should consider changing your name as I hate calling you this) could you better explain what your question is and why you are asking it.

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I thought the OP was talking about how some fund families have a policy where after you sell shares of a fund, you aren't allowed to buy any more shares for a set period of time. Vanguard requires you to wait 30 days after a sale in an account before you can buy into that fund again. https://personal.vanguard.com/us/whatweoffer/overview/redemptionpolicy

The idea is to minimize turnover within the fund because if there is a lot of selling going on then the fund may have to liquidate some of its underlying assets in order to allow the trades to go through.

I thought the OP basically wanted to buy shares of a fund one day, sell them two days later, buy them back 30 minutes later, and sell them again in 4 days. This behavior is generally bad for the individual investor as well as their fellow shareholders. However, perhaps the OP is up to something else?

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Quote

I thought the OP was talking about how some fund families have a policy where after you sell shares of a fund, you aren't allowed to buy any more shares for a set period of time. Vanguard requires you to wait 30 days after a sale in an account before you can buy into that fund again. https://personal.vanguard.com/us/whatweoffer/overview/redemptionpolicy

If this is what he meant  than you are very correct and most fund companies probably have a restrictive policy of some sort.  From the investors point of view its not a very good idea to do this.  If thats his plan then individual stocks might be the way to go but most folks lose at this game. I also have to wonder if the SEC might  require all financial companies to have a policy to prevent insider trading.

But this just my opinion. i don't know any of this for fact because I learned long ago buying and selling frequently is a losers game. Thats all I need to know.

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