Author Topic: ETF vs Index Funds ?  (Read 4218 times)

GreenEggs

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ETF vs Index Funds ?
« on: June 21, 2017, 05:17:44 PM »
I'm sure it's been covered to death, but can somebody explain (or offer a link to a good explanation) the pro's & con's of each. 

Also, looking on the Vanguard ETF list I see the MGK yields are higher than the VTI, so would it be a better choice?   

Nothlit

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Re: ETF vs Index Funds ?
« Reply #1 on: June 21, 2017, 06:15:56 PM »
ETF trades happen in real time on the market; index funds trade once a day after market close. Vanguard's ETFs mostly (all?) have expense ratios matching the Admiral class of the corresponding index fund, with no minimum investment necessary (well, 1 share is the minimum).

However, you need to be aware of things like bid-ask spread, market vs. limit orders, and the fact that you can typically only buy ETFs in integer amounts (i.e., no fractional shares).

Vanguard has a decent white paper on the topic: http://www.vanguard.com/pdf/ISGETF.pdf

AlanStache

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Re: ETF vs Index Funds ?
« Reply #2 on: June 21, 2017, 06:32:00 PM »
With mutual funds you can set up automatic recurrant dollar amount investments ie 100$ every 1st of the month, this is not really a thing with etf's.  But with Etfs you can see 100% of what is in the fund, commonly with mutual funds you can only see the biggest parts - YMMV.  Historically mutual had worse fees, but lately this seems to have become less a thing, but again do your home work.

Radagast

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Re: ETF vs Index Funds ?
« Reply #3 on: June 22, 2017, 07:38:52 AM »
I'm sure it's been covered to death, but can somebody explain (or offer a link to a good explanation) the pro's & con's of each. 

Also, looking on the Vanguard ETF list I see the MGK yields are higher than the VTI, so would it be a better choice?
In a taxable account the best choice is Vanguard Admiral Shares mutual funds which have an ETF version available, because the ones with an ETF version are less likely to distribute capital gains which force you to pay taxes. For all other fund companies ETF's are better in taxable accounts for the same reason, just be sure to keep the expense ratio down and choose a fund that trades easily.

In tax sheltered accounts there is no advantage, choose either mutual funds of ETF's. I suggest that mutual funds are the better choice because they do not require personal interaction, you can set them to invest automatically. Generally the less you interact with investments the better you will be. Also, I expect mutual funds may have fractionally lower lifetime expenses than an identical ETF. Not that big a deal in accumulation because you buy earlier in the day and are more likely to catch a dip, but in retirement mutual funds sell later in the day when prices should be, on average, higher.

VTI has a higher yield than MGK. Do not choose MGK. VTI is the better option.

AlanStache

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Re: ETF vs Index Funds ?
« Reply #4 on: June 22, 2017, 07:56:24 AM »
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... but in retirement mutual funds sell later in the day when prices should be, on average, higher

I had not heard this before.  Is this based on within-the-day price fluctuations or that the market on average goes up so selling latter will get a higher price?


Radagast

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Re: ETF vs Index Funds ?
« Reply #5 on: June 22, 2017, 08:27:17 AM »
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... but in retirement mutual funds sell later in the day when prices should be, on average, higher

...the market on average goes up so selling latter will get a higher price?
This one.

AlanStache

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Re: ETF vs Index Funds ?
« Reply #6 on: June 22, 2017, 08:39:13 AM »
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... but in retirement mutual funds sell later in the day when prices should be, on average, higher

...the market on average goes up so selling latter will get a higher price?
This one.

But the fund manager could/would buy-sell during the day where and only the funds published value is determined at close.  I am not sure... But in any event this is waaaaaaaaaaaay down in the weeds of etf vs mutual funds.

Radagast

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Re: ETF vs Index Funds ?
« Reply #7 on: June 22, 2017, 09:19:38 AM »
But you buy the fund at end of day pricing, regardless of what the manager does. Then the only other thing to look at is how closely the fund tracks the index. But, yes this is completely insignificant, the biggest concerns by far are personal behavior, asset allocation, and expenses.