Author Topic: Index funds vs ETF - VTI vs VTSMX  (Read 7369 times)

OceanCid

  • Guest
Index funds vs ETF - VTI vs VTSMX
« on: February 10, 2014, 02:17:05 AM »
I have a simple question: why is vti $93 and vtsmx $45 if they are the same thing. Why aren't they the same value?

sherr

  • Handlebar Stache
  • *****
  • Posts: 1543
  • Age: 36
  • Location: North Carolina, USA
Re: Index funds vs ETF - VTI vs VTSMX
« Reply #1 on: February 10, 2014, 11:56:07 AM »
The price-per-share really has nothing to do with how valuable the stock / mutual fund / etf / anything else is.

https://www.google.com/finance?q=aapl&ei=9h35UuDOBYGy6wH1Mw
A share of Apple stock is currently $530. They have issued 892.45 Million shares. Multiply the two together and you get the total valuation for the company (how much it is "worth" given the current stock price) of $472 Billion. But there's nothing magic about a high stock price. They could have just as easily issued 472 Billion shares of stock and had a stock price of $1 and be exactly as valuable as they are today.

The same applies to VTI and VTSMX. VTSMX is a mutual fund that tracks the CRSP US Total Market Index. VTI is an ETF that does the same. The dollar value of one "share" is irrelevant, the performance between the two should be (roughtly) the same.

If you're trying to choose between the two my advice would be to go with the mutual fund. Mutual funds are a simpler concept that ETFs, and you should always invest in things you understand. And if you're trying to decide between the two, you almost certainly don't need the extra "features" that come with ETFs.

soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 6797
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: Index funds vs ETF - VTI vs VTSMX
« Reply #2 on: February 10, 2014, 12:51:58 PM »
And the ETF's you have to buy whole shares whereas the Vanguard funds you can just do a dollar amount.

OceanCid

  • Guest
Re: Index funds vs ETF - VTI vs VTSMX
« Reply #3 on: February 11, 2014, 12:48:44 AM »
It is not a matter of deciding between the two. Where I live I don't have access to Vanguard's mutual funds, only to their ETFs.
I understand the concept behind shares, and that it has nothing to do with how valuable a company is. But there must be a logic behind a share's price. It's certainly not random. And in the case of VTI being the ETF equivalent of VTSMX I was wondering why Vanguard decided to price a share this way...

Thanks!

grantmeaname

  • Walrus Stache
  • *******
  • Posts: 5186
  • Age: 29
  • Location: Cincinnati
  • Cast me away from yesterday's things
Re: Index funds vs ETF - VTI vs VTSMX
« Reply #4 on: February 11, 2014, 07:06:45 AM »
It is not a matter of deciding between the two. Where I live I don't have access to Vanguard's mutual funds, only to their ETFs.
I understand the concept behind shares, and that it has nothing to do with how valuable a company is. But there must be a logic behind a share's price. It's certainly not random. And in the case of VTI being the ETF equivalent of VTSMX I was wondering why Vanguard decided to price a share this way...

Thanks!
They started VTSMX at one time at one arbitrary price (say, $10), and then started VTI at a different time and perhaps a different arbitrary price (say, $40). There's no reason they have to match.

OceanCid

  • Guest
Re: Index funds vs ETF - VTI vs VTSMX
« Reply #5 on: February 11, 2014, 08:14:40 AM »
VTI started after VTSMX.
If when VTI started, VTSMX was trading at, let's say, $30, why didn't they start VTI at the same price. And if they move more or less the same, wouldn't they be at the same price years later? Wouldn't it be more elegant?

grantmeaname

  • Walrus Stache
  • *******
  • Posts: 5186
  • Age: 29
  • Location: Cincinnati
  • Cast me away from yesterday's things
Re: Index funds vs ETF - VTI vs VTSMX
« Reply #6 on: February 11, 2014, 08:23:18 AM »
VTSMX would be trading at something like $43.57, not something round like $30. There's also a bit of a lag when they do the papers: they would propose some volume of shares be made to match the portfolio, and they could set the number of shares to get it in the ballpark, but then if the market value of the underlying portfolio fluctuated they'd still miss the targeted dollar value. That's true for a round number or for matching the regular mutual fund. Then, which fund do you match? VTSAX or VTSMX? If you just match VTSMX the values will pull apart over time as the expense ratios differ. And what if they switch benchmarks for the two funds on different dates?

Point is, it's not so simple.