I'm a 39 y/o male making maximum contributions in my employer's 401(K), but would also like to establish an additional investing path for long-term use - to supplement my retirement income. I plan to work for another 20 years. Is it better for me to invest in mutual funds, an ETF, or perhaps open a Roth IRA? Thank you for any insight!
You have several investment accounts to choose from: Roth IRA, traditional IRA, taxable,
and possibly an HSA. You can populate all these accounts with either mutual funds or ETFs.
HSA accounts are the only triple tax-advantaged accounts available.
Your incoming contributions are not taxed, holdings are not taxed, and distributions are
not taxed when they are used for medical expenses.
Participation in a qualified high-deductible insurance plan is a prerequisite for an HSA.
Assuming you are making pre-tax contributions to your 401k, a Roth IRA can offer "tax diversification".
I'm a little older than you and have decided to make maximum pre-tax contributions to a 401k and
maximum after-tax contributions to a Roth IRA. I also contribute to an HSA.
My strategy may not be appropriate for you since our specific situations may vary.
If you decide to invest in a taxable account, ETFs can be more tax-efficient than mutual funds.
However, broad-based indexed mutual funds (S&P 500, Total Stock Market) are also very tax-efficient.
Note: Vanguard patented a system where many of their ETFs are a different share class of an existing
mutual fund. In these instances, both funds' after-tax performance will be identical in effect.
Thanks for your advice and feedback! I should have mentioned that I would prefer to make routine, scheduled contributions every 2-4 weeks (dollar cost averaging). Given that, ETF is probably not a good option, correct? (Since you have to pay commission every time you buy/sell shares).