Merrill Edge for Vanguard Mutual Funds

[earthshine]

Hello,
I am looking to start a Merrill Edge account, and purchase VTSMX as well as some other Vanguard funds, and perhaps a few stocks.

The reason I am looking at Merrill Edge is that I understand I will have free trades with a minimum balance (50K).

Is there any reason why one would have a Vanguard account for Vanguard funds, vs purchasing them via Merrill Edge?

I assume expense ratio would be the same?

[money_maniac]

Merrill Edge charges a $19.95 fee for vanguard mutual fund purchases. Also, I'm not sure but I think you have to have an actual vanguard account to get admiral shares. You asked about an investor share class so this probably isn't applicable but something to be aware of using Merrill Edge.

I use bofa and merrill edge as an all-in-one suite for my finances. I have platinum honors status so I get 100 free trades a month, no atm charges, credit card rewards, etc etc. With my free trades, I just buy vanguard ETFs. Their expense ratios are the same as admiral shares, so it's not a huge deal.


Merrill Edge does offer a lot of mutual funds with no load and no transaction fee, but unfortunately not for vanguard.

[johnny847]

Also, I'm not sure but I think you have to have an actual vanguard account to get admiral shares. You asked about an investor share class so this probably isn't applicable but something to be aware of using Merrill Edge.

That's correct. Don't use Merrill Edge if you want to use mutual funds. I assume the OP wants to qualify for admiral shares at some point (I mean, it's only $10k for admiral. And yes, I mean "only", since you'll need far more than $10k to FIRE).

I use bofa and merrill edge as an all-in-one suite for my finances. I have platinum honors status so I get 100 free trades a month, no atm charges, credit card rewards, etc etc. With my free trades, I just buy vanguard ETFs. Their expense ratios are the same as admiral shares, so it's not a huge deal.

This is a compelling reason to use Merrill Edge when combined with a BoA Travel Rewards card, because that allows you to get 2.625% cash back on everything.


Earthshine, the expense ratios are the same, but you're paying a transaction fee (EDIT: on the mutual funds at ME) which is equivalent to a front end load compared to just buying mutual funds directly at Vanguard.
I would use Vanguard unless you want to get the bonus rewards on the BoA Travel Rewards card. You can get 2.25% cash back on everything if you have $50k at ME/BoA.

[money_maniac]

Earthshine, the expense ratios are the same, but you're paying a transaction fee which is equivalent to a front end load compared to just buying mutual funds directly at Vanguard.
I would use Vanguard unless you want to get the bonus rewards on the BoA Travel Rewards card. You can get 2.25% cash back on everything if you have $50k at ME/BoA.

Assuming OP qualifies for platinum or platinum honors, there is no transaction fee on ETFs (up to 30 or 100 trades per month depending on status). Not only that, grabbing the vanguard ETF w/o a transaction free is a better option than grabbing VTSAX through vanguard since the ETF will have a lower expense ratio.

[johnny847]

Earthshine, the expense ratios are the same, but you're paying a transaction fee which is equivalent to a front end load compared to just buying mutual funds directly at Vanguard.
I would use Vanguard unless you want to get the bonus rewards on the BoA Travel Rewards card. You can get 2.25% cash back on everything if you have $50k at ME/BoA.

Assuming OP qualifies for platinum or platinum honors, there is no transaction fee on ETFs (up to 30 or 100 trades per month depending on status). Not only that, grabbing the vanguard ETF w/o a transaction free is a better option than grabbing VTSAX through vanguard since the ETF will have a lower expense ratio.

Yeah I meant to say there's transactions fees on the mutual funds.

But you're completely wrong about the expense ratio. The ETF version of a fund always has the same expense ratio as the admiral shares version.
VTSAX expense ratio: 0.05%
VTI expense ratio: 0.05%

Because the expense ratios are the same, if we ignore the extra cc rewards possible with platinum or platinum honors, buying the mutual fund at Vanguard is strictly cheaper on average than buying the ETF at Merril Edge because you pay a bid/ask spread with ETFs whereas you don't with mutual funds. (I say on average because you trade ETFs during the day, so on some days you may end up buying at a intra day price lower than the day's closing price, which is how the mutual fund is priced. However, unless you're somehow knowledgeable about intraday pricing, you're just as likely to end up buying at an intra day price that is higher than the day's closing price).

[money_maniac]

I meant to say buying the ETF thru merrill is cheaper than buying VTSMX through vanguard. You are right, etfs always have the same expense ratios as admiral shares but OP asked about investor class.

Regarding bid/ask spread, as long as you aren't buying at 9:30 am, it will never be more than a penny or 2 per share. I tend to favor the liquidity of an ETF so I strictly trade ETFs for free and get admiral expense ratios thru merrill.

[johnny847]

Regarding bid/ask spread, as long as you aren't buying at 9:30 am, it will never be more than a penny or 2 per share. I tend to favor the liquidity of an ETF so I strictly trade ETFs for free and get admiral expense ratios thru merrill.

I know the bid/ask spread is small on high trade volume ETFs like VTI. But what I said is still true. It is strictly cheaper to buy admiral shares of the mutual fund at Vanguard than ETFs at ME (or anywhere else for that matter).
This small detail is useful as a tiebreaker, but otherwise pales in comparison to any other reason to use mutual funds over ETFs, or vice versa.

I tend to favor the liquidity of an ETF so I strictly trade ETFs for free and get admiral expense ratios thru merrill.

Unless you're day trading, how exactly is an ETF more liquid? (I'm assuming you're not a day trader, because even most of the active traders I've seen on this forum aren't day traders. Also, you only get 30 free trades a month with platinum anyways). Sales of ETFs and stocks are subject to the (T+3) rule, as opposed to the mutual funds' (T+1) rule. It takes two more days to move money from ETFs to your bank account. That makes ETFs less liquid than mutual funds. Unless you're day trading and you want to say sell VTI in the morning, buy VXUS around noon, and then sell VXUS in the afternoon (since you can't do this type of exchange with mutual funds in a single day).

Most traditional mutual funds will settle on the next business day (known as T+1) after an investor places a transaction (assuming the transaction is placed during normal business hours, and before a fund company’s cut-off time). This means that when you sell a traditional mutual fund, you can generally withdraw or transact your money again on the business day after you place the sale. Stocks and ETFs on the other hand settle on the third business day (T+3) from the date the transaction is placed. Because of this, there is a possible delay in being able to move from one investment vehicle to another.

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[forummm]

I meant to say buying the ETF thru merrill is cheaper than buying VTSMX through vanguard. You are right, etfs always have the same expense ratios as admiral shares but OP asked about investor class.

Regarding bid/ask spread, as long as you aren't buying at 9:30 am, it will never be more than a penny or 2 per share. I tend to favor the liquidity of an ETF so I strictly trade ETFs for free and get admiral expense ratios thru merrill.

No, Vanguard does not charge any fees for trading Vanguard ETFs, regardless of your account balance. They do restrict how many times you can buy/sell an ETF to discourage day trading (I think it's 12 times per month) but you can do unlimited buys and unlimited sells in a month--just not buy/sells.

Just going directly to Vanguard is the better deal for a buy-and-hold indexing investor. If you want to buy individual stocks, you should have a reason why you want to do that and why you think you can beat the market. Typically people who buy individual stocks lose to the market. You have to really know what you're doing. It's much riskier than just buying a Vanguard fund.

[earthshine]

Thank you both so much. This information is super helpful and just the info I needed to help me figure out what to do next.

I would be in platinum status and qualify for free trades. I just need to decide whether that is really a road I would like to go down. I definitely don't think I am smart enough to outsmart the market, but it is tempting to have a few dividend growth stocks.

Money Maniac- when you say ETFs are more liquid, is this because you have option to sell during day?

[money_maniac]

Unless you're day trading, how exactly is an ETF more liquid? (I'm assuming you're not a day trader, because even most of the active traders I've seen on this forum aren't day traders. Also, you only get 30 free trades a month with platinum anyways). Sales of ETFs and stocks are subject to the (T+3) rule, as opposed to the mutual funds' (T+1) rule. It takes two more days to move money from ETFs to your bank account. That makes ETFs less liquid than mutual funds. Unless you're day trading and you want to say sell VTI in the morning, buy VXUS around noon, and then sell VTI in the afternoon (since you can't do this type of exchange with mutual funds in a single day).

I can buy or sell an ETF any time I want at the price I see that instant. With a mutual fund, I have to put in my order by 2:30pm and get the end of day price. A lot can happen in the market between 2:30pm and 4pm. What if the market is down at 2:30pm, I see a good buying opportunity, but by 4pm the market is up 1,000 points. With a mutual fund, too damn bad. You are gonna pay the higher price. That is analogous to me going to a car dealership, signing a binding contract to buy a car, and having the guy tell me that he'll let me know at 4pm what the price will be after he gets a sense of what the demand is.

I'm sure your rebuttal will tell me about market timing, long term investing, indexing, etc. I already know all the arguments. I am the type of person who likes to pay the price he sees.

No, Vanguard does not charge any fees for trading Vanguard ETFs, regardless of your account balance.

Please show me where I said Vanguard charges fees for trading ETFs.

[money_maniac]

Money Maniac- when you say ETFs are more liquid, is this because you have option to sell during day?

I would no doubt go the Merrill edge route if you qualify for platinum. The free trades, credit card rewards, atm fees waived make it the easiest way to have your finances all in one place.

ETFs offer more freedom than a mutual fund. I can go into my Merrill account at any point during the day, instantly sell my ETF, and transfer the money to my bofa checking account. Done. Simple. My emergency fund is invested in ETFs. I like knowing that if I need the money in an emergency, I can sell the ETF and get the price I see at that moment.

[johnny847]

I can buy or sell an ETF any time I want at the price I see that instant. With a mutual fund, I have to put in my order by 2:30pm and get the end of day price. A lot can happen in the market between 2:30pm and 4pm. What if the market is down at 2:30pm, I see a good buying opportunity, but by 4pm the market is up 1,000 points. With a mutual fund, too damn bad. You are gonna pay the higher price. That is analogous to me going to a car dealership, signing a binding contract to buy a car, and having the guy tell me that he'll let me know at 4pm what the price will be after he gets a sense of what the demand is.

Maybe that's a ME rule, but as long as I put my mutual fund orders in before the market closes, Vanguard will process the mutual fund transaction the same day.

The exact opposite of your scenario can happen. You might buy at 2:30 pm because it's down, and by 4 pm it's down further.

But your reasoning for wanting to know the buy or sell price has nothing to do with liquidity.
Liquidity has two definitions:

• The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.
• The ability to convert an asset to cash quickly. Also known as "marketability."

Unless you're fantastically rich, you as an individual have no measurable impact on the buy/sell price of any of Vanguard's ETFs.  And I already explained how converting ETFs to cash is slower than converting mutual funds to cash. So neither of these definitions support your argument that ETFs are more liquid because you know the buy/sell price at the time of the order.

If you like ETFs because you know what price you're getting, that's fine, but don't confuse that with liquidity.

[tj]

Thank you both so much. This information is super helpful and just the info I needed to help me figure out what to do next.

I would be in platinum status and qualify for free trades. I just need to decide whether that is really a road I would like to go down. I definitely don't think I am smart enough to outsmart the market, but it is tempting to have a few dividend growth stocks.

Money Maniac- when you say ETFs are more liquid, is this because you have option to sell during day?

There are no free trades on Mutual Funds at Merrill. just  ETFs and stocks.

[money_maniac]

Maybe that's a ME rule, but as long as I put my mutual fund orders in before the market closes, Vanguard will process the mutual fund transaction the same day.

The exact opposite of your scenario can happen. You might buy at 2:30 pm because it's down, and by 4 pm it's down further.

But your reasoning for wanting to know the buy or sell price has nothing to do with liquidity.
Liquidity has two definitions:

• The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.
• The ability to convert an asset to cash quickly. Also known as "marketability."

Unless you're fantastically rich, you as an individual have no measurable impact on the buy/sell price of any of Vanguard's ETFs.  And I already explained how converting ETFs to cash is slower than converting mutual funds to cash. So neither of these definitions support your argument that ETFs are more liquid because you know the buy/sell price at the time of the order.

If you like ETFs because you know what price you're getting, that's fine, but don't confuse that with liquidity.

Thanks for your copy/pastes, really appreciate you using google and educating me. At risk of making this an ETF vs mutual fund discussion, let me just say this: Most people think of liquidity as how quickly they can "get out" of an investment. A house (maybe a month), a vehicle (maybe a week), a mutual fund (a day), an ETF (that second). The fact that the  bank actually posts the final cash in my account T+X days afterwards is of secondary concern to me.

Getting back to the OP- the smart thing in this situation is to use Merrill Edge. The platinum status he will enjoy will more than make up for than the hypothetical "pennies" he will lose from the bid/ask spread on an ETF. He will have the ability to trade any ETF (not just Vanguards) and any equity (unlike the $7 Vanguard will charge). I like Vanguard too and the majority of my portfolio is in various Vanguard products. However, being a Vanguard fanboy to the point of giving bad advice is clearly not the best course of action here.

[johnny847]

Thanks for your copy/pastes, really appreciate you using google and educating me. At risk of making this an ETF vs mutual fund discussion, let me just say this: Most people think of liquidity as how quickly they can "get out" of an investment. A house (maybe a month), a vehicle (maybe a week), a mutual fund (a day), an ETF (that second). The fact that the  bank actually posts the final cash in my account T+X days afterwards is of secondary concern to me.

What? No, when people think of liquidity, they think of how quickly can I use the cash from selling this asset. The T+X is 100% relevant.
Suppose it actually took one month for the proceeds of an ETF sale to hit your bank account. You're telling me that you still regard ETFs as more liquid than mutual funds in this scenario?

If you want to use the term liquidity to mean how quickly you can sell your investment (but not how quickly you can use the cash from the proceeds) then go ahead, but essentially nobody else uses that dictionary.