PREMIERE ISSUE • JUNE 2007 





ETFs vs. Mutual Funds - Part 1

The Basics: When you mention the word "mutual fund" most folks immediately understand this as an investment tool in their 401k, IRA or Brokerage account. What many don’t know is that each mutual fund is an investment company set up to buy an underlying basket of stocks. This allows you to get instant exposure to a select asset class in the market. Mutual funds can be passively managed and track indexes or actively managed by a fund manager who tries to beat the benchmark index by actively picking stocks for his fund. Traditional mutual funds have been around since 1924 and are the primary investment vehicle used by investors today.

ETFs, or Exchange Traded Funds, came into the market in the early 1990’s but only in the last couple of years have they begun to accelerate in growth. The basic ETF was designed to act like a passive mutual fund in that it was a basket of securities that tracked an index. The difference was that an ETF traded like a stock so it could be bought and sold intraday on the exchange. (A mutual fund is only purchased or redeemed at the close of market each day) The early ETFs tracked the big indexes like S&P 500 (SPY) or the Dow Jones Industrial Average (DIA). Fast forward a couple of years and you have ETFs that now cover every known index you can think of and now many sub-sector areas for specialized investing.

  In the next edition we will discuss pros and cons of each type of investment product. For further information, click here to view an informative brochure on ETFs.


A different way to think about retirement needs
There seems to be a lot of debate when it comes to what is needed for retirement income: Do you need 70%, 80% or 100% of your present income? What about the 4% withdrawal rule from investment accounts in retirement? 

Every institution seems to have their philosophy about the subject. While these philosophies may be good "rules of thumb," they aren't precise. When it comes to retirement each person is unique. Some may want to continue with current lifestyle while others may have plans to upsize or downsize lifestyle. The most important term here is "lifestyle."

The way a financial planning strategy addresses this topic is not on replacing your income, but covering your lifestyle expenses. At The Advisory Firm we determine retirement needs by looking at each client’s present lifestyle expenses and figuring out what it will take to support that. By taking the time to do a cashflow analysis as part of a comprehensive financial plan it enables us to provide specific advice on what it will take for a comfortable retirement.

Financial Tips
2007 Contribution Limits:

401k contribution limit is $15,500 and the over age 50 catchup is $5000.

Roth IRA contribution eligibility phaseout is $156,000 to $166,000 AGI for Married Filing Jointly.

Roth IRA contribution eligibility phaseout is $99,000 to $114,000 AGI for single filers.

Roth contribution limit for 2007 is $4000 with over age 50 catchup of $1000.



James A. Daniel,
CFP®, AIF®

This newsletter if for information purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.


© 2007 The Advisory Firm, LLC. All Rights Reserved.
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