Author Topic: VTSAX: Mutual Funds or ETFs  (Read 2445 times)

48Nebraska

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VTSAX: Mutual Funds or ETFs
« on: February 02, 2015, 09:18:15 PM »
Hello,

Does anyone has experience buying both mutual funds and ETFs, and have some thoughts on why one or another is a better choice?  I'm getting ready to make my first VTSAX purchase with 10k, but am a little nervous about which one to get into and thinking about taxes and such.  I don't need any dividends or capital gains right now because I'm still working, but was reading about how choosing the reinvestment option can be a huge hassle because of the fund price changing.  Should I open a money market account an have all my dividends and capital gains go into there?  Any thoughts or information would be appreciated.  Thank you.
George

stlbrah

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Re: VTSAX: Mutual Funds or ETFs
« Reply #1 on: February 02, 2015, 10:02:14 PM »
The only reason to buy the ETF over the mutual fund imo is if you are planning on "trading." With a mutual fund there might be a big stock rally at 12pm, and you put in your order at that time to sell, but then the market takes a 3% dive by 4pm est and you are in the red.

Also, if you are planning on depositing more money/holding it long term, you don't have to pay a deposit fee w/ a mutual fund.

From what you described, it sounds like you should just buy and hold the mutual fund

humblefi

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Re: VTSAX: Mutual Funds or ETFs
« Reply #2 on: February 02, 2015, 10:57:57 PM »
The intra day trading advantage has been mentioned....I will not repeat it.

One of the other main questions to ask is: what is your tax bracket?

If you are already in a high tax bracket, then you need to worry about two things:
+ Additional qualified dividend income, even though taxed at a lesser rate than income tax bracket, is still a tax.
+ Capital gains (both short and long term) can be generated which can lead to more taxes.
+ Capital gains can be generated even if you do not sell a single stock in the mutual fund...because somebody else sold their fund OR the fund manager did it.
   In ETFs, you control the capital gains distribution i.e. no taxes until you sell the ETF shares.

For more details, refer to http://www.bogleheads.org/wiki/ETFs_vs_mutual_funds.
I still chose mutual funds for other reasons that were more suitable for me...I do not have time to explain everything now...sorry. But if you have time, you can read my notes here: http://humblefi.com/2015/01/24/mutual-funds-vs-etfs-some-links/. Caveat: I am not a finance expert.

Hope that helps.

Eric

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Re: VTSAX: Mutual Funds or ETFs
« Reply #3 on: February 03, 2015, 10:53:04 AM »
I don't need any dividends or capital gains right now because I'm still working, but was reading about how choosing the reinvestment option can be a huge hassle because of the fund price changing. 

I'm not sure why having your dividends reinvested is a hassle at all.  In fact, it's one less step than collecting them in a money market account and then investing them yourself.  If you're worried about keeping track of the cost basis, well, that's what you pay Vanguard for.  That's their job, not yours.  Feel free to reinvest those dividends.

Jags4186

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Re: VTSAX: Mutual Funds or ETFs
« Reply #4 on: February 03, 2015, 01:16:40 PM »
Depends where you keep your money IMO.  If you are with Vanguard themselves I would just go with the mutual fund.  You can buy a dollar amount of shares, not a total share amount with the ETF.

I am with TD Ameritrade and therefore I buy VTI and have dividends reinvested.  It is commission free with them so I buy shares every paycheck and don't worry about it.  I always have $25-$50 bucks sitting idle though as I cannot buy partial shares of VTI.  I could move to Vanguard but its more trouble then its worth IMO.

48Nebraska

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Re: VTSAX: Mutual Funds or ETFs
« Reply #5 on: February 17, 2015, 12:02:58 PM »
Thank you everyone for the good information, from different angles.  Mutual funds seems to best fit what I'm trying to do with the Vanguard funds.  I wish I knew more people like you all in my regular day life.  Much appreciated!!