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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Re: tough decision, or is it? Date: 11/18/1999 5:30 PM
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mqboyle1 wrote:
should I sell the mutual funds that I have now, and purchase stock (of course after careful research)? Or should I keep what I have in mf, just cancel our monthly allotments to them and slowely start purchasing stock? Again, this money is long term for retirement, and I can handle big swings in the market.

Additionally, is it smarter to purchase stock, say everytime you have a $500-$1000 or so, or keep the cash and wait until you have $2000+ to purchase? (to save on E-trades commission)


There is nothing wrong with mutual funds per se. It's just that you need to look closely at the costs. An S&P 500 Index fund in a low cost company like Vanguard is a very good investment.

To decide whether to sell your current mutual funds or not you must take into consideration the capital gains (losses??) you will incur. If these are long term gains you will pay 15% or 20% of the gain in taxes depending on your tax bracket.

If you sell, pay your taxes, and put the money in E*Trade, you will have a $14.95 or $19.95 commission for each trade depending on the exchange you are buying from. I try to keep my commission costs to 2% or less of my total transaction. So, at $500 per month, you'd probably want to wait for two months to get $1000 before buying a single stock. If you are going to do the RP4, you will have $14.95 times 4, or around $60.00 total to deal with. Applying the 2% rule means you need at least $3000 to do the RP4.

I recommend that you read the FAQ on the Foolish Four Board which addresses this quite well.

-rkm
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