Author Topic: ETF vs Index Fund - why choose one over the other?  (Read 6038 times)

FabricStache

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ETF vs Index Fund - why choose one over the other?
« on: January 27, 2015, 08:15:36 PM »
Hi!  I'm trying to do my own investing at Vanguard instead of paying Fidelity 2% to do it for me.  I've read a lot about the difference between ETF and Index funds.  I'm confused which one is better than the other; especially, if their ER and their investments are the same.  For example  BND Vanguard Total Bond Market ETF ER 0.08% vs VBTLX Vanguard Total Bond Market Index Fund Admiral Shares ER 0.08% (I understand there is a minimum investment for Admiral shares).  In which situation would one be more beneficial over the other?

Eric

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Re: ETF vs Index Fund - why choose one over the other?
« Reply #1 on: January 27, 2015, 08:37:30 PM »
Your terminology is a little off.  You're comparing an ETF vs a Mutual Fund.  Both an ETF and a Mutual Fund can be an Index Fund.

There are a few subtle differences between ETFs and Mutual Funds.  ETFs are traded during the trading day like stocks and generally have no minimum investment amounts.  Mutual funds are settled (bought/sold) at the end of the day and as you noted can have minimums.  Depending on where you're doing the trading, one may cost more than the other.  Or not. 

In your specific case mentioned above, there's no right choice as they're functionally the same.
« Last Edit: January 27, 2015, 08:48:08 PM by Eric »

Eric

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Re: ETF vs Index Fund - why choose one over the other?
« Reply #2 on: January 27, 2015, 08:42:16 PM »
Also, here's a Boglehead thread with your exact question if you want some more detail:

http://www.bogleheads.org/forum/viewtopic.php?t=85065&mrr=1320245387

FabricStache

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Re: ETF vs Index Fund - why choose one over the other?
« Reply #3 on: January 27, 2015, 08:55:42 PM »
Thanks Eric!  Up until this point I thought that index funds were a type of mutual fund but I see how I've got my terminology all mixed up.  Thanks for the link.  It brought a lot more clarity than the dozen articles I've read.

I don't plan on trading outside of rebalancing my portfolio a couple times a year.  In this situation would the 2 essentially be the same?

Eric

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Re: ETF vs Index Fund - why choose one over the other?
« Reply #4 on: January 28, 2015, 10:01:26 AM »
As long as you have the $10K to meet the admiral share requirement, then yes.  Flip a coin.  Or go with the ticker symbol you like best.  :)

Inkedup

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Re: ETF vs Index Fund - why choose one over the other?
« Reply #5 on: January 28, 2015, 10:15:39 AM »

The only Vanguard fund I have available in my 403b (Lincoln) is the Domestic Equity ETF. The ER is lower than most of the Lincoln funds (0.74) so I have that one in my portfolio. I also have the S&P 500 index fund (ER is .05). I am wondering if I should tweak the percentages to favor the index fund over the ETF, or dump one over the other. 
Thoughts on this? 

Left

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Re: ETF vs Index Fund - why choose one over the other?
« Reply #6 on: January 28, 2015, 10:51:08 AM »
I prefer ETFs, mainly because I like to sell/buy in the same day (yes, I know I'm not a strict buy/hold person. Mutual funds are settled at the end of the day so it is easier to sell/get money next day vs ETF where you have to wait about 3 days for it to settle before withdrawing the money.

As I get nearer RE, I'll most likely transition to mutual funds for that reason, but until then, I'll stick with ETFs.