Author Topic: ETFs for the long term investor?  (Read 2201 times)

fund4tomorrow

  • 5 O'Clock Shadow
  • *
  • Posts: 24
ETFs for the long term investor?
« on: July 24, 2015, 01:01:13 PM »
My apologies in advance if this may have been discussed in a previous thread earlier, but I am considering the idea of investing in ETFs for a very long time vs. index funds (10-20 years) in a taxable account. 

I currently own the Vanguard Total Stock Market Index (VTSMX) fund via Vanguard directly.  At the moment, I have investor share status which has a 0.17% ER, while the ETF and Admiral shares have ERs of just 0.05 %.

I'm considering adding to the portfolio, the Vanguard Total International Stock fund, but with another 3K minimum investment, I would have to fund it and then sell part of it have it match my desired asset allocation of 80/20.  Then do the same if I wanted to add another fund. 

I originally opened the account directly with Vanguard because I could fund monthly additions to the accounts in whole dollar amounts because the ETFs at Vanguard do not allow partial share purchases via automatic investing like they do at Betterment or Wealthfront.  I'm not going with Betterment or Wealthfront because I don't foresee myself selling anytime in the near future and am not sure if their model will provide me any monetary advantage vs. their additional fees.

I have available to me some monthly free trades via my bank (Merrill Edge).  I'm thinking of building my portfolio using those free trades.  I will give up the auto investing via Vanguard to have an opportunity to lower my expense ratios over the long term. 

Before doing this, I wanted to see what others would consider in this scenario?  Does this make sense?  Are there any negatives to going long in ETFs vs index funds? 

Any concerns on dividend reinvesting? 

Many thanks!

Matt


forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: ETFs for the long term investor?
« Reply #1 on: July 24, 2015, 01:45:59 PM »
Why not just keep buying VTSMX until you get to $10k? You can do a tax-free conversion to VTSAX at that point. Then you can either keep buying VTSAX or start buying the investor shares of VTIAX. I think for a very small portfolio like yours, VTSAX is fine on its own. If you get to $25k or $50k, then maybe think about adding VTIAX. Either way. I personally only own mutual funds (not ETFs) and don't plan to buy any ETFs. You just don't need to. And it's more convenient to just auto-invest, or to send specific dollar amounts over to your Vanguard fund. And for less than $10k invested, the very small different in ER between the VTSMX and VTI is pennies per year. And you'll get to $10k before too long right?

I would stick with just Vanguard. If you really want to buy ETFs, Vanguard has free trades of their ETFs.

nobodyspecial

  • Handlebar Stache
  • *****
  • Posts: 1468
  • Location: Land above the land of the free
Re: ETFs for the long term investor?
« Reply #2 on: July 25, 2015, 11:47:53 AM »
I personally only own mutual funds (not ETFs) and don't plan to buy any ETFs.
Do you mind if I ask why?
My official retirement acct is a mutual funds because I can auto-deposit $X000 ever month automatically but everything else is in ETFs
Other than the round number convenience - and higher fees - are there any other reasons for mutual funds?


forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: ETFs for the long term investor?
« Reply #3 on: July 25, 2015, 12:07:33 PM »
I personally only own mutual funds (not ETFs) and don't plan to buy any ETFs.
Do you mind if I ask why?
My official retirement acct is a mutual funds because I can auto-deposit $X000 ever month automatically but everything else is in ETFs
Other than the round number convenience - and higher fees - are there any other reasons for mutual funds?

Autoinvesting, no bid-ask spreads, no concern about whether the market price is higher or lower than NAV, etc. Compared with Admiral funds, ETFs cost more over the long run--by a small amount. It's just more hassle that I don't need.

https://investor.vanguard.com/etf/etf-vs-mutual-fund
https://personal.vanguard.com/us/faces/JSP/Funds/Tools/FundsToolsEtfCostSelectionContent.jsp
https://www.bogleheads.org/forum/viewtopic.php?t=112631
« Last Edit: July 25, 2015, 12:10:08 PM by forummm »

nobodyspecial

  • Handlebar Stache
  • *****
  • Posts: 1468
  • Location: Land above the land of the free
Re: ETFs for the long term investor?
« Reply #4 on: July 25, 2015, 12:19:58 PM »
Ok - thought there might be some big secret I had missed ;-)

We don't get Admiral up here so it's 0.2% for etfs or 1% for bank's mutual funds