VTI or VTSAX in brokerage account

[Edwards]

I have over $100,000 in a vanguard brokerage account as VTSAX.

However, I have been reading that ETFs are better because they are more tax efficient. This may be true but after looking over the numbers for both VTI (ETF) & VTSAX (mutual fund) I haven't quite grasped in what way VTI is better than VTSAX.

1) With this in mind, would someone be able to explain how/why VTI is a better deal (if this is true)?

2) Should I convert all my VTSAX into VTI?

3) Should I leave my current investments as is, then use VTI for all future brokerage account investments?

Thanks everyone for your help!

[Indexer]

However, I have been reading that ETFs are better because they are more tax efficient.

This is true everywhere but Vanguard. Vanguard patented a model where the ETFs and index funds are share classes of the same investment. This allows the fund to share the same tax efficiency benefits of the ETF.

Conclusion: From a tax efficiency standpoint VTI and VTSAX are equal.

However, VTI is 0.01% cheaper than VTSAX. For this reason you probably should switch to VTI, and since VTSAX & VTI are share classes of the same investment you can convert VTSAX into VTI without triggering a taxable event.

[Aggie1999]

0.01% on a million dollars is $100 per year. To me that is worth the convenience of a Vanguard mutual fund over it's ETF equivalent.

[bacchi]

For this reason you probably should switch to VTI, and since VTSAX & VTI are share classes of the same investment you can convert VTSAX into VTI without triggering a taxable event.

Ask Vanguard to do the conversion. Don't do it yourself.

[BECABECA]

You should know that if you have vanguard convert to ETF then you’ll give up certain conveniences of a mutual fund. And you can’t have vanguard convert back from the ETF to mutual fund if you aren’t happy with the move, so it’s one way without becoming a taxable event.

I have found that the convenience of mutual funds is worth the ~$150 fee difference on my ~$1.5m in VTSAX. With mutual funds, during the accumulation phase I just had an auto investment that bought VTSAX every month. With ETF I would have had to actively make the buys each month during trading hours. And once I start using the funds for my living expenses in a couple of years, I’ll have an auto sell that transfers straight to my checking every month for expenses. If I switched to ETF then I’d have to go in and actually make the sells myself during trading hours. Making things manual like that gives much more opportunity to think about trying to time the market.

Being able to truly set it and forget it is worth the tiny fee difference for me. It may not be worth it for everyone though.

[Indexer]

For this reason you probably should switch to VTI, and since VTSAX & VTI are share classes of the same investment you can convert VTSAX into VTI without triggering a taxable event.

Ask Vanguard to do the conversion. Don't do it yourself.

TRUE. Sorry for failing to mention that. To make sure it's tax free call them to do it.

[Edwards]

Thanks everyone for the information!
I figured the situation was not as black & white as the articles suggested.

[Car Jack]

They're the same.

Where is the ETF better?  If you want to move it.  I recently converted my VTMGX into VEA, then moved it to TDAmeritrade to get out of the incompetence of Vanguard.  I picked up a nice $600 welcome gift for my trouble.

[thejordanburnett]

I have always wondered this myself, because I've heard that VTI is more tax efficient than VTSAX. Vanguard actually provides after tax returns on their compare feature of the website:


Essentially, the after tax returns are .01% to .02% higher on VTI (assuming the highest federal tax bracket). That equates to $10-20 per $100,000.00.

To see how they calculate it, you can visit this link:
https://investor.vanguard.com/investing/profiles/after-tax-returns

[terran]

I have always wondered this myself, because I've heard that VTI is more tax efficient than VTSAX.

Have you actually heard that, or have you heard that ETFs are more tax efficient than mutual funds? Because, while that's true for ETFs/mutual funds from all other companies, it shouldn't be true for Vanguard given the patent they have that lets them flush capital gains from their ETFs in the same way that all companies do, but also flush them from mutual funds through the ETF, which other companies can't. Maybe your chart above is just showing the difference in expense ratio between VTI and VTSAX?

[thejordanburnett]

I have always wondered this myself, because I've heard that VTI is more tax efficient than VTSAX.

Have you actually heard that, or have you heard that ETFs are more tax efficient than mutual funds? Because, while that's true for ETFs/mutual funds from all other companies, it shouldn't be true for Vanguard given the patent they have that lets them flush capital gains from their ETFs in the same way that all companies do, but also flush them from mutual funds through the ETF, which other companies can't. Maybe your chart above is just showing the difference in expense ratio between VTI and VTSAX?

I have heard both--that ETFs are more tax efficient than mutual funds in general, and that at Vanguard it's possible that the mutual funds are just as tax efficient as mutual funds.

Per their description:
After-tax returns are quarter-end-adjusted for fees and loads, if applicable.

I'm not knowledgeable enough to know all of the specific details that go into the tax liabilities of net redemptions/etc. of each. But when you look at both funds, there are very few/minor differences. Two differences are the 30 Day SEC yield and expense ratio which could affect the total return.

1.85% 30 day SEC Yield on VTI versus 1.84% on VTSAX.

.03% Fee on VTI versus .04% fee on VTSAX.

Overall, I don't think they're worth arguing about. Jim Collins suggests VTSAX even in taxable accounts, and he's researched it more than I likely ever will.

[MoneyQuirk]

VTI is better, but it's just barely better.

If you have VTSAX, stick with it. If you haven't invested yet, choose VTI.

Cheers!

[Proud Foot]

I'm not knowledgeable enough to know all of the specific details that go into the tax liabilities of net redemptions/etc. of each. But when you look at both funds, there are very few/minor differences. Two differences are the 30 Day SEC yield and expense ratio which could affect the total return.

The biggest tax differences between an ETF and Mutual Fund regarding the taxes is how the "shares" are set up. With an\ ETF there are a set number of shares unless the ETF decides to issue new shares/retire shares. Anytime someone buys/sells an ETF there is no creation/redemption of shares and therefore no reason to sell any investments held within the ETF. A mutual fund issues/redeems shares daily based upon the inflow or outflow of cash. As a result they may need to either buy or sell investments to meet the cash needs causing realized gains/losses.

Personally my preference when choosing between a Vanguard fund or ETF is to go with the fund due to the flexibility of fixed contributions/withdrawals allowing me to automate this portion and remove the impulse of market timing and make it one less thing manually do. .