ETFs land in 401(k)s, 529 college savings plans

Exchange traded funds, the hottest trend in the mutual fund industry, are making inroads into 529 college savings plans and 401(k) retirement plans, but they are still a small part of both markets.

ETFs are mutual funds that trade on the stock exchanges. ETF assets have soared to $1.2 trillion in March from $151 billion in 2002, according to the Investment Company Institute, the funds’ trade group.

Initially, ETFs were the domain of traders, because you could buy and sell them at any time during trading hours. Traditional open-ended mutual funds are priced once a day, after the exchanges close.

Now ETFs are making their way into tax-deferred savings plans, albeit slowly. State Street Global Advisors rolled out an all-ETF 529 plan in April. The SSgA Upromise 529 plan, a new arrangement with the state of Nevada, offers three all-ETF options:

•College-date portfolios, which are managed to be less risky as your child approaches college age.

•Risk-based portfolios, designed to fit aggressive, moderate and conservative investors.

•Static portfolios, which allow you to create your own ETF portfolio.

Investors can change their portfolios only once a year, so people can’t day trade with their child’s college savings plan.

The main advantage is cost, says Steve Coyle, director of U.S. subadvisory services for SSgA. The average annual cost for the portfolios is 0.49%, vs. 0.87% for open-end funds, Coyle says.

Like many ETF-based offerings, the plan is attractive to investment advisers, who can create portfolios for clients, charge fees for the service and still be cost-effective.   Read More


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Posted on May 9, 2012, in #business news, #financing and tagged , , , , , , , , . Bookmark the permalink. Leave a comment.


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