Author Topic: Vanguard Mutual funds vs ETF  (Read 4862 times)

Debonair

  • 5 O'Clock Shadow
  • *
  • Posts: 72
  • Age: 29
  • Location: Taiwan
    • DebonairDylan
Vanguard Mutual funds vs ETF
« on: August 07, 2016, 07:14:33 AM »
So with some hard work I have cleared all my debts, I have an Emergency fund, and now it's time to invest. (I live and work outside the US so money I make here can't be put in tax-advantaged retirement accounts)

I have about 15,000 to invest. I don't know if to put it in Vanguard Mutual Funds or their ETF's. Are their major differences? Advice on what mutual funds or ETF to buy is appreciated too.

JR

  • Stubble
  • **
  • Posts: 129
Re: Vanguard Mutual funds vs ETF
« Reply #1 on: August 07, 2016, 07:48:06 AM »
You can trade ETFs intraday and mutual fund orders are only fulfilled after the market closes. ETFs can trade at premiums or discounts compared to their NAV. There are some other nuances but those are two big ones. I use VTSAX vtiax in our tax advantaged accounts at Vanguard and use VTI and VXUS in our accounts at TD Ameritrade (I can buy commission free ETFs but not mutual funds at TDA).

johnny847

  • Magnum Stache
  • ******
  • Posts: 3192
    • My Blog
Re: Vanguard Mutual funds vs ETF
« Reply #2 on: August 07, 2016, 07:56:29 AM »
You can also at any time call up vanguard and convert your mutual fund shares to ETFs without triggering a taxable event. However this is a one way street - you can't convert in the other direction.

What I like about mutual funds is you can automate their investment. With ETFs and their intra day trading I've never seen an automated system to buy them (though it should be technically feasible with market orders - but there are reasons to avoid market orders)

mathjak107

  • Pencil Stache
  • ****
  • Posts: 558
Re: Vanguard Mutual funds vs ETF
« Reply #3 on: August 07, 2016, 08:02:17 AM »
be careful with etf's . they are still relatively new and the kinks are still being ironed out .

we saw an example of this on 8/24 with the mini crash .  at the low some popular etf's like DVY  as an example had imbalances happen that caused them to plunge 30-40% in  price , even though markets were only down about 5% .

the flash crash caused some kind of imbalance in the arbitraging system that keeps the stock etf's in line with the basket of stocks they own .

etf's can also be more volatile then the equivalent open ended funds because they can be sold short .

be aware that unlike stock etf's which trade normally at very very small discounts or premiums , bond etf's can have big spreads . buy at a premium and sell at a discount and your bond etf can take quite an extra hit .

all my etf's i ever owned at fidelity had auto reinvest for the dividends as an option .

« Last Edit: August 07, 2016, 08:04:10 AM by mathjak107 »

markstache

  • Stubble
  • **
  • Posts: 167
Re: Vanguard Mutual funds vs ETF
« Reply #4 on: August 07, 2016, 10:28:56 AM »
I have both mutual funds and ETF through Vanguard. I originally went with this plan so that I could take advantage of the lower expense ratio with smaller holdings (when you get above 10k, usually the cost of ETFs and mutual funds are the same). Going forward, I think I will just channel new funds into fewer mutual funds. I thought I was going to be a slice and dice investor, but I've discovered I'm a lazy investor.

For particular products any of the life strategy or target date retirement funds will get you a great portfolio at zero effort. You can save a little money (through lower expense ratios) by holding comparable mutual funds or ETFs directly, but it is more work. You could also just drop in all in VSTAX.

One caveat: I'm not too familiar with after tax investing (getting there), so you might want to seek advice on this directly.

Tons of great reading at the Bogleheads wiki.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 2200
Re: Vanguard Mutual funds vs ETF
« Reply #5 on: August 07, 2016, 12:07:02 PM »
With a foreign address can you buy both mutual funds and ETFs at Vanguard?  You might be limited to ETFs, I'm not sure.

Right now $60 billion is invested in Vanguard Total Market ETF ("VTI"), which gives it a lot of stability.  Vanguard lists the inception date as 2001 for that ETF, so 15 years of history.  You'll note people who disparage ETFs tend to avoid providing examples about Vanguard's top ETFs, as most of the criticisms don't apply.  And those are the ETFs you'd want to use.

You could make a 3 fund portfolio from Vanguard ETFs: Total Stock Market ("VTI"), International ("VXUS", or VEA + VWO), and Total Bond ("BND").  Your percentages may vary depending on your current location and where you plan to retire: the bias towards US stocks applies more to people who will retire in the U.S. than someone working abroad who plans to retire abroad.

Tiger Stache

  • Stubble
  • **
  • Posts: 114
  • Location: NOLA
Re: Vanguard Mutual funds vs ETF
« Reply #6 on: August 07, 2016, 03:10:35 PM »
You can trade ETFs intraday and mutual fund orders are only fulfilled after the market closes. ETFs can trade at premiums or discounts compared to their NAV. There are some other nuances but those are two big ones. I use VTSAX vtiax in our tax advantaged accounts at Vanguard and use VTI and VXUS in our accounts at TD Ameritrade (I can buy commission free ETFs but not mutual funds at TDA).

When I was moving some money around a couple of years ago at TDA, I went with the Vanguard ETFs that were commission free. Some really good choices available too.

The differences I saw with MF/ETF was the commissions, some of the mutual funds have huge initial investments, some were closed to new investors, but there were equivalent ETFs that don't have the restrictions. Vanguard has the equivalent ETFs listed right on their website for certain mutual funds.

I don't mess with non index type funds though, i stick with VTI, VTV, and VYM.

forummm

  • Walrus Stache
  • *******
  • Posts: 7389
  • Senior Mustachian
Re: Vanguard Mutual funds vs ETF
« Reply #7 on: August 07, 2016, 05:01:01 PM »
You can trade ETFs intraday and mutual fund orders are only fulfilled after the market closes. ETFs can trade at premiums or discounts compared to their NAV. There are some other nuances but those are two big ones. I use VTSAX vtiax in our tax advantaged accounts at Vanguard and use VTI and VXUS in our accounts at TD Ameritrade (I can buy commission free ETFs but not mutual funds at TDA).

When I was moving some money around a couple of years ago at TDA, I went with the Vanguard ETFs that were commission free. Some really good choices available too.

The differences I saw with MF/ETF was the commissions, some of the mutual funds have huge initial investments, some were closed to new investors, but there were equivalent ETFs that don't have the restrictions. Vanguard has the equivalent ETFs listed right on their website for certain mutual funds.

I don't mess with non index type funds though, i stick with VTI, VTV, and VYM.

If you have an account with Vanguard, there are no fees to buy, hold, or sell Vanguard mutual funds or ETFs. If you have your money with some other broker (like TDA) they will usually charge you to buy or sell mutual funds and ETFs.

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1437
Re: Vanguard Mutual funds vs ETF
« Reply #8 on: August 07, 2016, 08:00:53 PM »
For most index funds the expense ratio(cost) is the same for the admiral share and the ETF. The admiral shares have a minimum of $10k. ETFs have a spread when you buy and sell, it's a small cost, but technically it makes them more expensive than the admiral shares. You can set up automatic options(buy $1,000 monthly from bank account) with the admiral shares. You can't with the ETFs. The ETFs are good if you want to trade intraday.

If you are a long term investor my advice is to buy the admiral shares. If you can't afford the minimum for the admiral shares... then buy the ETFs.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9088
  • Registered member
Re: Vanguard Mutual funds vs ETF
« Reply #9 on: August 28, 2019, 11:10:29 PM »
I'd like to revisit this, because I've noticed the the vanguard mutual funds seems to have slightly higher expense ratios (compare VXUS to VTIAX, VWO to VEMAX, etc.)  It's kind of a hassle to set limit orders, but I also like that it keeps me practiced in trading mechanics for other investments that have no MF equivalent.  The ability to sell intraday is of course a double-edged sword, but with a disciplined approach to investing I think it's ultimately an advantage (avoid doing anything stupid).

Any big reason to use the MF that I'm missing?  Maybe the ETF is currently a loss leader and the ER differences will reverse in the future.

flipboard

  • Bristles
  • ***
  • Posts: 285
Re: Vanguard Mutual funds vs ETF
« Reply #10 on: August 29, 2019, 01:52:45 AM »
I'd like to revisit this, because I've noticed the the vanguard mutual funds seems to have slightly higher expense ratios (compare VXUS to VTIAX, VWO to VEMAX, etc.)  It's kind of a hassle to set limit orders, but I also like that it keeps me practiced in trading mechanics for other investments that have no MF equivalent.  The ability to sell intraday is of course a double-edged sword, but with a disciplined approach to investing I think it's ultimately an advantage (avoid doing anything stupid).

Any big reason to use the MF that I'm missing?  Maybe the ETF is currently a loss leader and the ER differences will reverse in the future.
ETF ER's are lower because ETF's are cheaper to administer. That won't change _ever_, because it's an inherent difference (Mutual Fund administrators need to trade daily due to buys/sells, ETF's don't need to create/redeem units anywhere near as often.)

HeadedWest2029

  • Stubble
  • **
  • Posts: 188
Re: Vanguard Mutual funds vs ETF
« Reply #11 on: August 29, 2019, 08:46:56 AM »
There's a strong case for holding ETF's in a brokerage account vs mutual funds for tax-efficiency purposes. 
https://twitter.com/MstarETFUS/status/1159091286747557889
FWIW, I personally have ETF's in my brokerage accounts and mutual funds in tax sheltered accounts

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1437
Re: Vanguard Mutual funds vs ETF
« Reply #12 on: August 31, 2019, 08:26:36 AM »
Over the past 6 months the Vanguard ETFs have had lower costs than the mutual funds, and it does look like that's going to stay the case. I've been switching to ETFs.


There's a strong case for holding ETF's in a brokerage account vs mutual funds for tax-efficiency purposes. 
https://twitter.com/MstarETFUS/status/1159091286747557889
FWIW, I personally have ETF's in my brokerage accounts and mutual funds in tax sheltered accounts


This is true for non-Vanguard index funds. Vanguard's index funds and ETFs are share classes of the same investments and share the same tax efficiency benefits. VTSAX is just as tax efficient as VTI.