Author Topic: ETF's vs. Mutual Funds  (Read 4696 times)

payitoff

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ETF's vs. Mutual Funds
« on: June 13, 2014, 02:53:04 PM »
what is the cost difference? i'm still figuring out the cost difference when it comes to its gains/dividends. I heard you get taxed more on ETF's?
which is better?

milesdividendmd

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Re: ETF's vs. Mutual Funds
« Reply #1 on: June 13, 2014, 03:03:29 PM »
ETFs are traded intraday on the stock market.  Mutual fund prices are set at the end of the day.

Etf's can stray a bit from their net asset value (unlike mutual funds) so they can be bought at a bit of a premium or a discount.

For a long term invester, there is virtually no difference assuming the ETF is unlikely to be dissolved forcing a capital gains hit (unlikely in vanguard or ishares funds with large holdings.)

Hope that helps,

Alexi

chucklesmcgee

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Re: ETF's vs. Mutual Funds
« Reply #2 on: June 13, 2014, 11:42:39 PM »
From what I've seen there's virtually no difference. ETFs can stray a bit from underlying assets, but really not much. Fees seem to be a tiny bit lower. I like Vanguard's VTI, their total stock market index ETF.

If you get an ETF do enable DRIP (dividend reinvestment). I think that may be what you were thinking of when thinking about taxes.

ETF pros:

Much much lower minimums to invest than mutual funds (1 share s usually $20-$150 vs. Vanguard's minimums that can be $1000-$5000)
Lower expense ratios. VTI gives expense ratios less than Admiral's Mutual fund shares but only takes $100 to get started.
Very easy to select from many funds from different investment companies through one brokerage account.
A number of banks and brokerage firms are offering perks for having large ($25k-$100k+) balances with them, like cash bonuses, frequent flyer miles, free ATM withdrawals for your checking account, free safe deposit boxes and other perks. Vanguard won't give you that.

ETF cons:

Have to buy a whole number of shares. If you have $10,000 to invest and shares of an ETF are $110, you can only buy 90 shares, leaving you with $100 of uninvested cash. Usually not a problem as you can put that little bit in some other fund or move an extra $10 from your checking account in. You can obtain fractional shares when stocks pay dividends using DRIP. DRIP is offered for free on big index funds from major brokers.


All in all it's not going to make a huge difference, but with the low minimums, lower fees and choices I like ETFs more.

sobezen

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Re: ETF's vs. Mutual Funds
« Reply #3 on: June 18, 2014, 12:20:25 PM »
Good points for considering ETFs. 

Questions for everyone:
How do you compare and analyze the ETFs vs index funds?  This isn't exactly an apple to apples comparison yes?  So for example the VTSAX vs the VTI.   Also what other considerations do you keep in mind during your analysis?  Do people prefer using the tax advantaged accounts to hold the ETFs vs the index funds too? 

Thank you in advance everyone. Cheers!

LostInTheWoods

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Re: ETF's vs. Mutual Funds
« Reply #4 on: June 18, 2014, 12:36:15 PM »
Don't forget the tax adavantages of ETFs

jfer_rose

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Re: ETF's vs. Mutual Funds
« Reply #5 on: June 18, 2014, 12:42:35 PM »
I found the wiki linked below to be helpful. In particular, if you happen to be using Vanguard Admiral Shares, I learned it makes little difference if you are in invested in VTI vs VTSAX:

http://www.bogleheads.org/wiki/ETFs_vs_mutual_funds