Mutual Funds or ETFs?

[nokia1566]

What would be the best way to put 25k to use in the market? I am 18 and will be buying and holding for several years. I plan on adding 1000-2000 a week to my portfolio (so mutual funds seem like the best idea because of the costs of trading of ETFs). What mutual funds would you suggest for an 18 year old who can afford to take some risks but also wants to be able to sleep at night knowing the money is safe? Should I be going 80/20 in stocks/bonds or should it be more like 60/40 in the current questionable market? Thanks in advance.

[TGoldman]

I think it really depends on the annual maintenance fees charged by the mutual fund(s) that you have in mind. With a fund like Vanguard's S&P 500 tracker, VFINX, that has a low 0.18% maintenance, you're probably better off with the no-load mutual fund. However, if the difference in maintenance is about 1% for the mutual fund vs. say about 0.5% for a similar ETF than are probably better off with the ETF. Since you're working with a considerable amount of money, the extra 0.5% in fees will end up costing slightly more than the piddly $7 per purchase that Scottrade charges for market/limit orders.

I'm certainly no CFP, so take my advice with healthy dose of skepticism. At your age and with your investment goals (You said "buy and hold for several years" so I'm assuming that the money isn't earmarked for something specific in the future?) I think about 20% is the absolute most you would want to put into a bond fund. I'd recommend a mixture of the S&P 500 index and then either a mid-cap or small-cap index tracker (Or just go for the Wilshire 5,000 and score the entire stock market in one index). If you are concerned about the current state of the market, then diversifying a portion of your portfolio into other asset classes such as international stocks or bonds, a commodities index, or REITs. That will help smooth out your ride some and hopefully average you about 6%-12% a year.

You're 18 years old age and making an extra $1,000 - $2,000 per week in income? I'm impressed! Dare I ask how you make that kind of money? Maybe I should be turning to you for advice. =P