Author Topic: ETF vs. Mutual Fund  (Read 676 times)

musichate

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ETF vs. Mutual Fund
« on: January 02, 2019, 10:13:11 PM »
Hey everyone,

I'm confused about ETF's vs. mutual funds specifically related to Vanguard. I'm young and investing for the long term; what is the real difference between VTSAX (mutual fund) and VTI (ETF), considering that there are no transaction fees on either? I want to put all my Roth IRA investement into one of these each year and stop worrying about it. The $3,000 initial minimum for admiral shares is not an issue.

Thanks!

Fields of Gold

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Re: ETF vs. Mutual Fund
« Reply #1 on: January 02, 2019, 11:24:44 PM »
VTSAX = VTI

Difference boil down to your preference of mutual fund or ETF:

You buy VTI while trading is open; with a limit order you could get at least the price you want if the trade executes.

Buy orders for VTSAX are taken anytime but only filled after the 4PM closing bell on Wall Street.  That could be at a higher price than if you bought VTI immediately in the morning.  Look at the price fluctuations in VTI's chart for 1/2/2019: it was about 2% less expensive at 9:30AM than it was around 4:00PM. VTSAX-only buyers on 1/2/19 could not get that lower price available at 9:30AM.

With VTI, the minimum purchase is by the whole share.  Can't execute a buy order for $110 if the price of VTI is $115.  But you can place a VTSAX buy order (if your already own it in your portfolio) for only $1 and get partial shares, if desired.  VTSAX can have automatic investments; VTI cannot.

« Last Edit: January 02, 2019, 11:33:03 PM by Fields of Gold »

MustacheAndaHalf

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Re: ETF vs. Mutual Fund
« Reply #2 on: January 03, 2019, 10:03:15 AM »
Within Vanguard, VTI and VTSAX are classes of the same fund.  They're identical, except for the mechanism of purchases.

I prefer to place buy/sell orders when the market is open, and have it happen immediately.  So I like ETFs.  If you're a foreign investor, ETFs might also avoid restrictions on owing mutual funds.  Although you can meet the Admiral shares minimum for VTSAX, can you say the same about international (VXUS) and total bond (BND)?  A diverse portfolio would include some international and some bond funds.

That said, either choice is fine.  If you can't buy admiral shares, you might pay a higher expense ratio with investor shares.  But admiral shares vs ETFs shouldn't have an impact on your retirement.

robartsd

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Re: ETF vs. Mutual Fund
« Reply #3 on: January 03, 2019, 02:46:55 PM »
That said, either choice is fine.  If you can't buy admiral shares, you might pay a higher expense ratio with investor shares.  But admiral shares vs ETFs shouldn't have an impact on your retirement.
Most Vanguard funds got rid of "Investor" class shares and dropped the minimum for "Admiral" class shares to $3000 a few months ago.

For me, automatic reinvestment is the key feature that has me choosing mutual funds rather than the ETF's - even though it meant less flexibility in asset allocation when starting out. Of course Vanguard has a few collections of all-in-one funds that are great if you want to choose an asset allocation and set the whole thing on automatic (LifeStrategy funds without glide paths or Target Retirement [year] funds with glide paths).

PDXTabs

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Re: ETF vs. Mutual Fund
« Reply #4 on: January 03, 2019, 02:58:35 PM »
robartsd,

Everything you said is true. However, for reasons that I don't understand some of the ETFs have substantially lower fees than the mutual fund equivalents. Eg, VT vs VTWSX. I'm not sure why.

ThatGuy

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Re: ETF vs. Mutual Fund
« Reply #5 on: January 03, 2019, 07:41:08 PM »
This article isn't specifically about Vanguard but it gives the basic differences between mutual funds and etf's.

https://www.investopedia.com/articles/investing/110314/key-differences-between-etfs-and-mutual-funds.asp


robartsd

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Re: ETF vs. Mutual Fund
« Reply #6 on: January 04, 2019, 08:48:56 AM »
robartsd,

Everything you said is true. However, for reasons that I don't understand some of the ETFs have substantially lower fees than the mutual fund equivalents. Eg, VT vs VTWSX. I'm not sure why.
That particular fund never had Admiral class shares. To get the coverage of VTWSX in Admiral class mutual fund shares you can combine VTSAX and VTIAX.

MustacheAndaHalf

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Re: ETF vs. Mutual Fund
« Reply #7 on: January 05, 2019, 08:27:12 AM »
Since I mentioned the higher expense ratio and someone else asked about it, here's an example:

Vanguard Total Bond Market, ETF class : "BND", expense ratio 0.05%, minimum investment 1 share (currently $79.46 / share)
Vanguard Total Bond Market, admiral class : "VBTLX", expense ratio 0.05%, minimum investment $3,000
Vanguard Total Bond Market, investor class : "VBMFX", expense ratio 0.15% (closed to new investors)

If you only have $2,000 to invest in bonds, then you're left with "BND" (ETF class).  If you have $3,000 or more, you can pick either ETF shares ("BND") or admiral shares ("VBTLX").  It looks like VBMFX is no longer available.

JenniferW

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Re: ETF vs. Mutual Fund
« Reply #8 on: January 05, 2019, 08:40:49 AM »
I decided to go with ETF version of Admiral Shares Fund as it has the same expense ratio.  I don't mind not being able to purchase fractional shares, as the remainder is still collecting interest in the money market account until the next deposit and trade.

I like being able to do limit orders when purchasing and ETF allows me to do that.  Also I could buy/sell any time of day with limit orders, stop loss etc.
« Last Edit: January 05, 2019, 08:43:53 AM by JenniferW »

The frugal geographer

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Re: ETF vs. Mutual Fund
« Reply #9 on: January 05, 2019, 10:13:55 AM »
robartsd,

Everything you said is true. However, for reasons that I don't understand some of the ETFs have substantially lower fees than the mutual fund equivalents. Eg, VT vs VTWSX. I'm not sure why.
That particular fund never had Admiral class shares. To get the coverage of VTWSX in Admiral class mutual fund shares you can combine VTSAX and VTIAX.

I saw somewhere on Bogleheads that there will be an admiral version of VTWSX available later this month at 0.10% ER, same as the ETF.

TomTX

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Re: ETF vs. Mutual Fund
« Reply #10 on: January 05, 2019, 03:27:08 PM »
VTI is portable. Once you have a big enough chunk of money in there, you can start chasing brokerage bonuses without having to sell your investments. It's an "in-kind transfer" - Merrill Edge paid me $600 to move my IRAs over there, and now I get top tier affinity bonuses at Bank of America (for example - the Cash Rewards credit card. Normally it's 2% cash back at grocery/Costco/Sam's. With the affinity bonus, I get 3.5%. Plus getting the $200 signup bonus for spending $500 - no affinity bonus on the signup bonus - they only let you stack so far...)