The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: BlondeStache on September 05, 2021, 12:55:31 PM
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For long-term (i.e. buy and hold) investing in classic Vanguard funds/ETFs, such as VTSAX/VTI, where the expense ratio of the mutual fund is .04 and that of the EFT is .03, is there any reason then that would make the mutual fund version more desirable?
Tax-wise, they should be the same.
Timing flexibility gives ETFs the upper hand since you can buy/sell any time and not just end-of-day, not that I care about this at all since I plan to buy and hold.
Having to buy ETFs in whole shares is a minor inconvenience that doesn't exist for mutual funds, but in the grand scheme not being able to invest the last $200 out of what you intended to at the time shouldn't make much difference.
It baffles me that others don't outright say that ETFs are the clear winner here. Is there anything I'm missing that would point towards ETFs not being clearly superior to mutual funds? at least for VTSAX/VTI?
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One basis point is such a trivial amount that nobody cares.
Also, it wasn't always the case. The ETF became cheaper fairly recently, for a lot of people who started investing before that, the ER was the same.
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Funny you should ask. Just last night I watched a video by Rob Berger bout why mutual funds were better than ETFs for buy and hold investors Personally I prefer ETFs and think it's just what floats your boat.
Here is the video if you want to check it out.
https://www.youtube.com/watch?v=cHjpPRLPhLo
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The Bogleheads Wiki (https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds) has a fairly comprehensive list of pros and cons.
If you're at Vanguard and using their funds, it really doesn't matter. I'd say that since you can switch between the two with a phone call, mutual funds may have a very slight advantage with partial shares and automatic investments, if that matters to you. I originally chose mutual funds because the real-time trading of ETF scares me 😁. I see no reason to change now, until I decide to leave VG.
Outside of Vanguard, I'd use ETF in brokerage, mostly for portability, and in some cases transaction costs. And yes, the one basis point (Fidelity allows fractional shares on ETF).
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The Bogleheads Wiki (https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds) has a fairly comprehensive list of pros and cons.
If you're at Vanguard and using their funds, it really doesn't matter. I'd say that since you can switch between the two with a phone call, mutual funds may have a very slight advantage with partial shares and automatic investments, if that matters to you. I originally chose mutual funds because the real-time trading of ETF scares me 😁. I see no reason to change now, until I decide to leave VG.
Outside of Vanguard, I'd use ETF in brokerage, mostly for portability, and in some cases transaction costs. And yes, the one basis point (Fidelity allows fractional shares on ETF).
As a longtime VG fanboy, there are better options now.
Those better options will be easier to trade ETFs than MFs if you still want VG funds outside of VG
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Does anyone know if the tax choices are different? I recall mutual funds had average cost basis, but ETFs don't. I know ETFs have FIFO, HIFO and lot selection for deciding which shares were sold for tax purposes. Do mutual funds have those choices?
Mutual funds are only bought/sold at one institution, so transferring mutual funds can incur fees. Not so of stocks and ETFs, which are listed on public exchanges.
I view ETFs as more transparent. Vanguard tells everyone what is inside it's mutual funds, but you have to take their word for it. An ETF is replenished by huge institutional investors outside the company that runs the ETF. They have to know the contents, so they can buy hundreds of thousands of shares of each stock, and convert those shares into blocks of ETF shares. I've noticed third party websites have better information on ETFs, which reinforces that point.
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Here is one difference that affected me:
I set up Roth IRAs for my daughters as their college graduation gifts and advised them to go full VTI. Quickly I realized that it would be much better to go VTSAX because they could throw some round-number deposit at the mutual fund instead of having to buy full shares every time.
Meaning, if they wanted to toss $100 into their Roths they couldn't buy even one whole share of VTI with that but could buy $100 of VTSAX, no problem.
They have since converted their accounts to VTSAX now. When I send them $250 as a birthday Roth deposit they can invest it fully instead of having to do something else to cover some multiple of the VTI share price without odd money left over uninvested.
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for VTSAX, the mutual fund path, the reason I did it at first is because I should set a dollar amount monthly or weekly to buy VTSAX and it gives me what it can even down to partial shares... that's nice - it's a set it and forget it...
for VTI - seems I can only buy whole shares, so when I make a buy, I have to do it manually calculate how many shares I can buy, then do a limit or market buy....
both paths work for me, but - I like the real time data I can get from the ETF on my phone, unlike the mutual fund version only gives prices at the end of the market day...
I've converted all my VTSAX to VTI and I'm ok with it.. but the set it and forget it was fun... just keep filling my savings account, vanguard would just keep pulling from it....
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Here is one difference that affected me:
I set up Roth IRAs for my daughters as their college graduation gifts and advised them to go full VTI. Quickly I realized that it would be much better to go VTSAX because they could throw some round-number deposit at the mutual fund instead of having to buy full shares every time.
Meaning, if they wanted to toss $100 into their Roths they couldn't buy even one whole share of VTI with that but could buy $100 of VTSAX, no problem.
They have since converted their accounts to VTSAX now. When I send them $250 as a birthday Roth deposit they can invest it fully instead of having to do something else to cover some multiple of the VTI share price without odd money left over uninvested.
You can buy round dollar values of ETFs at Fidelity, Vanguard is way behind in brokerage tech. You'd rather pay more in ER to use the MF at VG than pay less to use the ETF at Fidelity?
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Here is one difference that affected me:
I set up Roth IRAs for my daughters as their college graduation gifts and advised them to go full VTI. Quickly I realized that it would be much better to go VTSAX because they could throw some round-number deposit at the mutual fund instead of having to buy full shares every time.
Meaning, if they wanted to toss $100 into their Roths they couldn't buy even one whole share of VTI with that but could buy $100 of VTSAX, no problem.
They have since converted their accounts to VTSAX now. When I send them $250 as a birthday Roth deposit they can invest it fully instead of having to do something else to cover some multiple of the VTI share price without odd money left over uninvested.
You can buy round dollar values of ETFs at Fidelity, Vanguard is way behind in brokerage tech. You'd rather pay more in ER to use the MF at VG than pay less to use the ETF at Fidelity?
It appears so.
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As a longtime VG fanboy, there are better options now.
Those better options will be easier to trade ETFs than MFs if you still want VG funds outside of VG
As someone who is looking for a place to invest, can you expand on what those better options are and what makes them better?
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As a longtime VG fanboy, there are better options now.
Those better options will be easier to trade ETFs than MFs if you still want VG funds outside of VG
As someone who is looking for a place to invest, can you expand on what those better options are and what makes them better?
If you like support and buying in dollars, Fidelity
If you like support and transferring in large amounts for transfer bonuses, Schwab
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Here is one difference that affected me:
I set up Roth IRAs for my daughters as their college graduation gifts and advised them to go full VTI. Quickly I realized that it would be much better to go VTSAX because they could throw some round-number deposit at the mutual fund instead of having to buy full shares every time.
Meaning, if they wanted to toss $100 into their Roths they couldn't buy even one whole share of VTI with that but could buy $100 of VTSAX, no problem.
They have since converted their accounts to VTSAX now. When I send them $250 as a birthday Roth deposit they can invest it fully instead of having to do something else to cover some multiple of the VTI share price without odd money left over uninvested.
You can buy round dollar values of ETFs at Fidelity, Vanguard is way behind in brokerage tech. You'd rather pay more in ER to use the MF at VG than pay less to use the ETF at Fidelity?
It appears so.
I was worried about my heirs dealing with VG after my demise, read too many horror stories about it. Better somewhere with branches. Plus bonus for my trouble. Win win win.
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For me personally I prefer ETF's. I don't think the argument is cut and dry though. We are talking about Vanguard Index funds. It's a choice between 2 really good options.
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I think the biggest advantage of mutual funds is automatic recurring transfers. Both my spouse's retirement accounts and my HSA are setup for automatic transfers, and it is kind of nice having the money go up without needing to do anything.