Endress Capital Management
Michael R. Endress is the President of Endress Capital Management. He started investing in 2003, gaining valuable experience by starting and managing his own Roth IRA. He graduated from Purdue in 2007. In 2008, he passed his Series 7 and Series 63 licensing examinations and became a stockbroker at Charles Schwab. Working at Schwab during the market crash of 2008-2009 gave Michael a valuable perspective on how to help clients in times of extreme volatility and uncertainty. After gaining further experience at Schwab, Michael resigned to pursue his dream of forming a fee-only Investment Advisory firm in 2010.
Michael enjoys educating clients about how they can best achieve their financial goals. In particular, he finds much happiness in showing others how hidden investment fees can cost them in the long term. He is committed to providing clients with ethical, unbiased investment advice under a transparent fee structure.
In his free time, Michael enjoys a variety of activities including exercise, intramural sports, reading and board games.
BA, History, Purdue University
Assets Under Management:
Readers acknowledge all risks of investing, including but not limited to the following: interest rate risk, market risk, business risk, depreciation risk, sector risk, default risk and bankruptcy risk. Readers acknowledge such investments are speculative and involve a high degree of volatility and risk. The client hereby acknowledges comprehension and liability for all investment risks.
First, let's discuss what the two have in common. Usually, exchange traded funds (ETFs) and mutual funds are diversified. This means the funds hold the stock and / or bonds of many different companies. So, both represent good ways to achieve a diversified portfolio without having to buy hundreds or thousands of stocks and bonds yourself.
That said, ETFs do have some advantages over mutual funds. The advantages are:
- Lower Expense Ratios- Nowadays, investors can purchase ETFs with expense ratios of less than .1%. Meanwhile, the average mutual fund charges an expense ratio of 1.25%
- No Sales Charges- Some mutual funds have a sales charge, which is an additional charge that is applied when an investor buys or sells a fund. Many A share American Funds, for instance, currently charge a 5.75% sales charge on purchases. ETFs do not usually have such sales charges.
- Lower Transaction Fees- Mutual funds tend to trade more than index funds. Mutual fund companies must pay to trade; therefore, investors will pay transaction costs that are NOT included in the expense ratio. On average, mutual fund trading fees costs a fund investor another 1.44% a year while index fund trading costs are lower. In fact, mutual funds overpay for trades on purpose, in order to receive benefits; this complicated and underhanded practice is known as a "soft dollar arrangement" and you can read about it in this Investopedia article.
- Higher Tax Efficiency- ETFs are more tax efficient than mutual funds. This is because mutual funds pay out larger amounts capital gains to their shareholders every year. For instance, from 2000 to 2010, mutual funds paid out about 7% of their Net Asset Value to shareholders. During the same period, ETFs paid out capital gains of .02% of their Net Asset Value. While this might sound good, the ability of ETFs to retain this money is an advantage over mutual funds. Since ETFs are able to retain their earnings instead of paying them out, this results in less tax liability to owners of the fund. Note: This is only a tax advantage in non-qualified accounts.
For all of these reasons, I typically recommend ETFs over mutual funds. While everything has advantages and disadvantages, when it comes to ETFs, the advantages outweigh the disadvantages.
I think the question has been answered as far as your maximum monthly benefit and the calculation used to figure it. So, I want to address how you can receive the maximum Social Security benefit over your lifetime. Of course, the one key piece of information is your life expectancy. However, even though you do not know your life expectancy, there are several things you should consider before making any decision.
If you are single, things are more straightforward. However, if you are married or divorced, you might have some really powerful options for maximizing your lifetime benefit. For instance, if you or your spouse was born before January 1st, 1954, you might be able to file a "restricted application." Ideally, this strategy would allow you to draw your spousal Social Security benefit while allowing your own benefit to grow unaffected. You would have to wait until full retirement age to do this. Because of complications like this, it would definitely be best to ensure you have explored all of your options before making a decision to take or delay benefits.
Furthermore, if you are unfamiliar with all the intricacies of Social Security, this is one area I would definitely recommend seeking help from a professional.
I agree 100% with Mr. Gould. I would add the following:
If you are talking about fee reductions by investing all of your money with one company, that would lead me to believe you might be purchasing loaded funds. If that is the case, I would highly recommend you find funds with lower expense ratios and no loads. The loads and expense ratios you pay could hurt your long-term investment performance.
If you are able to reduce fees because investing large amounts of money allows you to purchase a different share class of no-load funds or ETFs (e.g., Vanguard's Admiral Shares instead of Investor Shares), then you may be able to lower expense ratios. However, I recommend you look at each fund you want to invest in; determine if the reduced expense ratio is attainable while still splitting up your funds between two companies. Depending on how much money you are investing, you could possibly get reduced expense ratios while splitting your money up between two companies.
Finally, I would add that you do achieve diminishing returns as you pay less in expense ratios. The difference between 1% and the .1% (difference between an average mutual fund and some ETFs) is far more impactful than the difference between .1% and .05%. If you can only reduce expense ratios by .01%-.02%, you might decide that holding money at two companies is worth it.
I think the other advisors have done a good job summarizing the advantages and disadvantages of mutual funds. However, I wanted to elaborate a little bit on the cost of mutual funds.
There are charges in addition to the expense ratio, sales charges and possible tax liabilities that come from a mutual fund. These costs include cash drag and soft dollars. This Forbes article goes into detail on that. My summary of those two charges is below.
Cash Drag: Compared to index funds, mutual funds generally hold a higher percentage of cash. Since, over time, this cash will not earn you as much return as stocks or bonds, your return is negatively affected.
Soft Dollars: Soft dollars are complicated. Essentially, the mutual fund management team willingly pays an artificially higher price to make trades at a brokerage firm. That brokerage firm sends part of that trade commission to a third party service provider. Then, that third party service provider provides the mutual fund company with products and services.
There are limits to what those products and services can be. However, the bottom line is that the fund investors pay more to make trades so that the mutual fund company has access to free services from third party companies.
Neither soft dollars or cash drag is included in the expense ratio or sales charge.
Thanks for the question. I answered a question similar to this a few days ago. Here is the link to that question if you would like to read advisor responses as well.
For the average person, I believe hiring an advisor is a good idea. Now, for you individually, I do not know whether it is worth it or not to pay me or any other advisor for help. If you truly have the time, temperament, discipline and knowledge to do the job yourself, you can save the fee. Of course, I believe this is true of any field where you would pay someone for help. That said, I think it is extremely difficult for most people to manage their own money without letting emotions play a large role in decision-making. Vanguard itself conducted a comprehensive study that found advisors added significant value to clients.
If you do choose to use an advisor, I believe you need to find a good one to make it worth the fee. I would look for a fee-only advisor that does not have a conflict of interest in recommending certain products to you. This includes finding someone that does not make a commission from selling any insurance products. This Investopedia article goes into more detail on that. You can also check out prospective advisors on Brokercheck and/or the IAPD.