My (Mostly) Positive Experience Using Etsy to Outfit a Nursery

by Kevin

My wife and I are expecting our first sometime in July. As such we have been outfitting a nursery with all the typical items you expect: a crib, changing table, a dresser… the list goes on and on.

As I mentioned previously, I like the concept of Etsy for the unique items you can get either “stock” as sold by the seller or customized to your liking.

And for us the experience has been mostly positive.

Mostly.

Our Etsy Ordering Experience

As is natural with any new parent we want to have nice things in the nursery. As a personal finance aficionado I’d like those things to be as affordable as possible.

Etsy, for the most part, has been able to fit the bill pretty well at least in comparison to items that you can’t go down to Target to buy. We’ve ordered six items thus far and accepted delivery of four of them.

The only problem with the other two is we ordered at the end of March. It’s been well over a month since our order. One of those items I am not concerned about… the other… is having problems.

Communicative Sellers

When you are selling on eBay, Amazon, online forums or on marketplaces like Etsy you need to communicate well. Being descriptive with your item and communicating well with potential buyers will solve about 95% of all problems with online selling.

This translates perfectly to our situation with the two sellers whose items we have not yet received.

Seller One: Clear Description and Communicating

The first seller described her item very well. She also noted — and this is what I love about Etsy — that her current processing time was 4 to 6 weeks. This means I shouldn’t even start wondering about this order until the middle of this month.

Even if I were concerned, she’s done one thing better.

Apparently she too was expecting a child. And her baby was born prematurely. One of the first things I noticed when I was checking on orders is she had a new message up on her store’s page explaining the premature birth which was going to put her behind in getting orders out. She was actively working on them and planned to get them out as soon as possible.

I’m great with that and not really concerned at this point.

Seller Two: I Know You’re Alive…

The second seller has not been so great. She was originally supposed to ship the item on April 5th.

As any expecting parent can relate, things have been hectic. (Not to mention my birthday was a few days later and we traveled on a weekend.)

Needless to say the April 5th ship date slipped my mind. I checked on my orders at the end of the month and kind of scratched my head. Everyone else that said they would ship by a certain date, had.

Except this one.

So I started Etsy’s problem resolution process about 3 weeks after I should have. Which means it won’t be resolved until this week.

The great thing about Etsy is, as a seller, you can win repeat business over your own… on your own website. I’m not sure if this against Etsy’s terms of service, but if you can get a customer to buy an item on Etsy and then turn around and get them to buy in the future from your own business website you can cut the middle man out of the picture.

This seller is on Facebook, Twitter, Pinterest, and has her own blog. She’s driving to be out there in the community. (In fact she was posting on Facebook trying to get people to vote for her in some business contest.)

So I did what anyone else would do: I checked to see when her last activity had been. At first I was concerned because it showed her last Facebook and Twitter activity as early April, and her last blog post was on April 9th. I feared something might have happened to her — she had 72 ratings on Etsy with 99% satisfied — but seemed to have disappeared.

Then she posted on Facebook on April 25th. Then May 1st. Then May 3rd.

So she’s alive. She has an internet connection. And apparently she is ignoring both the messages I am sending her as well as those from Etsy.

…which should result in her store being suspended.

Awesome.

Long story short: you can save money and get unique items on Etsy… but just like with any other site, issues can pop up if the seller and you’ll need patience to go through the review process. If all else fails I’ll just do a chargeback on my credit card.

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The Pros and Cons of Buying on Etsy

by Kevin

In the old economy if you wanted to start a business you needed retail space, inventory, and lots of overhead to get started. In the new internet economy just about anyone can start a business with a website and producing their products on demand.

Even better, you don’t even need a website. You can sell on eBay, but the fees can eat away all of your profits. Instead many people are turning to Etsy in order to sell their handmade arts, crafts, and clothing goods. The fees are lower for the seller and the process is dead simple to set up your store and get inventory listed. Plus, if you make everything yourself on demand you can include a timeline for when the product will actually ship. (In other words you don’t have to ship immediately; you can sell the item, take time to produce it, then ship it.)

But is Etsy for everyone?

The Good and Bad of Buying on Etsy

As with any online transaction there is upside and downside to Etsy.

Why Etsy is Good for Buyers

Etsy is a great place if you are looking for unique items that are usually made in the United States. I know of several stay at home Moms that sell items on Etsy. It’s a great way to get nice items that you won’t find in stores and that aren’t made in a factory in China.

Sellers on Etsy set their own prices, too. You aren’t able to negotiate directly, but you can communicate with the shop owner. You won’t be able to do that when you shop at a big box retailer.

One of the best parts about Etsy is your ability to get an item customized. A shop owner will put up a certain type of print or image, but you can contact them directly to get specific colors or design. You can end up with truly unique item that no one else has based on the customizations you make.

Why Etsy is Frustrating for Buyers

When you are shopping on Etsy you are occasionally dealing with unprofessional or inexperienced shop owners. They may put up an item for sale, accept your payment, and stop responding. Or if they do respond it is very slowly.

Etsy has a resolution process that you can proceed with online. My big frustration thus far is there is no way to contact Etsy directly for help on the phone. You are required to put in an online support ticket and wait for them to respond to it.

I am not a fan of their resolution process.

Etsy Order Resolution

If you have a problem with your Etsy order or seller, you must put in an online support ticket request. From the moment you put in that support request the entire process takes two weeks to complete.

This is because the seller has 7 days to respond to you from the time you put in your support request. If they do not respond within 7 days, then Etsy’s Trust team reviews the ticket.

Then Etsy tries to contact the seller to remind them, again, to actually send your item. The seller has another 7 days to respond.

If they do not respond at the end of that period, then you can get your money refunded.

I’ve got a few stories to share with you about Etsy and my personal experience with sellers there next week. Have you used Etsy a lot?

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Minimizing Expenses and Maximizing Returns with ETFs Inside a Roth IRA

by Kevin

Over the last few points we’ve been discussing whether or not ETFs make sense inside of a Roth IRA. We’ve discovered that if you trade often the trading commissions will eat you alive; you’d be much better off sending your money off to low expense ratio mutual funds.

Here’s what we’ve discussed thus far:

I don’t want to complete wipe out the idea of using ETFs there is one strategy that you can use.

The Best of Both Worlds: Lower Expenses Using ETFs Inside a Roth IRA

We’ve already shown that trading often with ETFs will wipe out the lower expenses you pay as part of your portfolio. You’re better off sticking to mutual funds if you want to do that.

However, you can use a strategy that includes using mutual funds for a few years to build up your portfolio then moving that part of your portfolio in bulk to ETFs.

Then you switch back to mutual funds and repeat in the future.

Here’s how it works as an example:

  • You contribute $5,500 per year into a Roth IRA
  • You use Vanguard’s Target Retirement 2050 Fund (Expense ratio: 0.18%) as your mutual fund
  • You use a mix of 3 different ETFs with a total expense ratio of 0.0845% when you switch to ETFs (the difference between the mutual fund portfolio and the ETF portfolio is 0.0955% in expenses)
  • You pay $7 per ETF trade

First you set up your automatic contributions to the Vanguard Target Retirement fund. Since I do my investing with Vanguard directly, I pay no trade commissions. You can set up your automatic contributions however you like: twice per week, once per week, once per month, whatever. As long as you contribute $5,500 by the end of the year (or technically by April of the following year) it doesn’t matter.

As your portfolio grows you’re paying the same 0.18% expense ratio on the portfolio. That’s $9.90 on $5,500 invested.

Then you just wait to have enough money in your portfolio that paying the three trade fees ($7 x 3 = $21) is made up in the drop in the expense ratio.

Make sense?

You want to pay the lower expense ratio and have the difference between the old, higher expense ratio and the new, lower expense ratio equal the $21 in trade fees.

It comes down to simple math.

Convert from mutual fund to ETFs = ($21 / 0.0955%)

Convert from mutual fund to ETFs = $21,989.53

At $21,989.53 you can sell the shares of the mutual fund equivalent to that amount, have three trades into the ETF portfolio at $7 each, and come out even during that year thanks to the lower expense ratio. Every year after that you will enjoy lower expenses on that section of your portfolio.

The point at which you should convert from mutual funds to ETFs depends on:

  • what mutual funds you are currently invested in
  • what those mutual funds charge for expense ratio
  • what, if any, cost you have to buy/sell shares in those mutual funds
  • what ETFs you would invest in instead
  • what the expense ratio is for those ETFs
  • what you pay for trade commissions to get into the ETFs

The above data is for my personal situation, with my preferred mutual fund investment, and what I would use ETFs to build a portfolio for. Use the above strategy to figure out what your break-even point to switch to ETFs is.

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Calculating the Break-Even Point of ETFs Over Mutual Funds

by Kevin

In my previous post I asked if using a dollar cost averaging investing method ruined the appeal of ETFs. If you are trying to build out a diverse portfolio — that is, more than 1 or 2 mutual funds — then I do think ETFs have limited use simply due to trading costs.

A brief side note: one reader pointed out there are some brokerage firms offering commission-free ETF trades. This is the ideal, but you have to be aware of what exactly are in those ETFs. I’m making my calculations as if I am the average investor that only knows the big names and mainstream ETFs. However, if you find those brokerage commission-free ETFs are good values with the same expense ratios, then switching to those can save you significant cash in the long run.

However, that isn’t to say you can’t use ETFs in your portfolio or your Roth IRA. You just have to be smart in how you get there.

Calculating When Lower Expenses of ETFs Beat Mutual Fund Expenses

I wanted to see how long it would take — if ever — to break-even using ETFs instead of mutual funds.

I set up a spreadsheet with the following inputs:

  • $5,500 annual contribution to a Roth IRA
  • 7% annual growth
  • Trades cost $7 each
  • 0.0845% ETF portfolio expenses
  • 0.18% mutual fund portfolio expenses

The only variable: how many trades per year on the ETF side. I then ran calculations to show growth of the portfolio over 30 years (which impacts how much in expenses are paid each year) as well as the cost of the trades (which only applied to the ETF portfolio since my mutual fund contributions are free).

I then totaled the total expenses paid on the mutual fund side as well as the combined expenses plus trade commissions paid on the ETF side. Then you simply compare the two. This gave me the same mutual fund total expense cost of $10,051.76 over the life of the investment. (You end up with $519,534 in the portfolio, so not bad.)

Here are the results.

Trading 3 Times Per Month with ETFs vs. Investing in Target Date Retirement Mutual Fund

If you were trying to perfectly replicate the portfolio of Vanguard’s Target Date Retirement 2050 fund you would need three ETFs: a total stock market ETF, a total international market ETF, and a total bond market ETF.

You would then invest in each fund every month using as close to the same percentages to the Target Date Fund (63.2% total stock market, 26.8% total international market, and 10% total bond market). That would mean 3 trades every single month as part of your dollar cost averaging.

If you pursued this strategy, these are your results:

  • Mutual fund costs over 30 years: $10,051.76:
  • ETF costs including trading commissions over 30 years: $12,278.74
  • Difference for ETFs: ($2,226.98)

You end up a few thousand dollars behind using this strategy. Despite the lower expense ratio of the ETFs, the trade costs eat up the difference. You do eventually get ahead but it takes until year 36 before you break-even on the ETFs.

Trading 2 Times Per Month with ETFs vs. Investing in Target Date Retirement Mutual Fund

If you change things up so you only trade 24 times per year, perhaps doing monthly contributions to the stock ETF and then combining a couple of months of international or bond trades into one trade, you start to eek out an edge:

  • Mutual fund costs over 30 years: $10,051.76:
  • ETF costs including trading commissions over 30 years: $9,758.74
  • Difference for ETFs: $293.02
But just barely.

Trading 1 Times Per Month with ETFs vs. Investing in Target Date Retirement Mutual Fund

Of course if you could figure out how to just trade once per month you come out well ahead over the long term to the tune of $2,813.02.

  • Mutual fund costs over 30 years: $10,051.76:
  • ETF costs including trading commissions over 30 years: $7,238.74
  • Difference for ETFs: $2,813.02

How to Use ETFs in Your Roth IRA Portfolio

It might be difficult to keep track of just having 12 trades per year but still remaining diversified across 3 different funds. If so there is still one more way you can use ETFs inside a Roth IRA. I’ll tackle that in my next post.

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