Vanguard mutual funds vs ETFs

[tracipam]

Hey all,

Please throw in your two cents:  I'm opening a taxable account for the first time (already set up my payroll deductions to max out both my IRA and 401K for this year).  I'm planning to open the account with Vanguard.  My understanding is that it's best to keep index funds (rather than REITs or bonds or other high-turnover investments) in the taxable account, which is fine. 

I've got about $6000 to start with, which I was planning on splitting between an investor-share small cap and international fund for starters--about the only cheap fund option in my 401K is a standard large cap index, so I'm keeping a fairly high percentage in that and the rest as needed in bond/REIT funds to balance.  I'll keep throwing more in over the course of the year--probably about another 12-15K this year, and then more moving forward. 

Is there an advantage to investing in ETFs over mutual funds in taxable accounts?  Until I get to admiral share levels in Vanguard, looks like the ETFs are cheaper.  They also don't have a minimum, if I understand right (do I?) and as far as I can tell Vanguard doesn't charge a commission fee.  Based on that, it looks like Vanguard ETFs rather than mutual funds might be slightly better for me right now--is there something that I'm missing here, or does anyone else have suggestions? 

Thanks for your help!

[soccerluvof4]

unless i am mistaken if you split your 6k into two funds you will qualify for admiral funds in the 2 index's you pick. 3k a piece. Then going forward and money you invest automatically goes to the admiral shares. Just double check the number at the vanguard site but i thought it was 3k per fund.

[iamlindoro]

unless i am mistaken if you split your 6k into two funds you will qualify for admiral funds in the 2 index's you pick. 3k a piece. Then going forward and money you invest automatically goes to the admiral shares. Just double check the number at the vanguard site but i thought it was 3k per fund.

It is, generally speaking, $10K.  $3K is the minimum to get into the investor shares.

[Bruno]

Vanguard has a nifty calculator: https://personal.vanguard.com/us/faces/JSP/Funds/Tools/FundsToolsEtfCostSelectionContent.jsp

Calculates what is cheaper based on your input. There is no commission on Vanguard ETFs but a bid-ask-spread, as with other exchange traded equities.

[rugorak]

Basically the only difference between the ETF and Mutual fund versions of the same sort of index fund (VTSAX and VTI for example) is that with the ETF you have to buy full shares and the price can fluctuate all day long. The mutual fund all buy and sells happen at the end of the day at whatever the price is.

As far as is one better than the other, there really is no difference. With my taxable investments I did the ETF route primarily for the same reason you are looking at, the lower expense ratio without needing to have $10k in there when I started. I pretty much have just kept it that way since. Assuming you are looking to buy and hold you can't go wrong either way really. If you do go the mutual fund route be sure to convert it to Admiral shares as soon as you cross the $10k amount though. They won't do it automatically (and that is true on your taxed advantaged accounts too).

[tracipam]

Thanks for your advice, everyone!  I appreciate your responses.  Love the Vanguard calculator...