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Index Fund vs. Index ETF ?
Old 05-02-2014, 02:09 PM   #1
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Index Fund vs. Index ETF ?

Trying to understand difference between Index Fund vs. Index ETF ?

I read about the "mechanical differences", ETFs Vs. Index Funds: Quantifying The Differences

If you want to invest xx in equities to track S&P500, does it really matter if you choose Vanguard ETF (VOO) or Fidelity 500 Index (FUSEX) ?

The VG expense ratio is 0.05% less, but are there other reasons ?

Thanks !
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Old 05-02-2014, 02:21 PM   #2
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If you were at Fidelity you would be paying commissions for the VOO trades. If you were going to dribble in $100/month for 30 years and then dribble out $100/month in retirement for however long, VOO would make little sense.

ETF's can be harder to rebalance by selling and buying shares. You have to worry about ETF prices rising between selling one set of shares and buying the next set. Plus commissions, if applicable. With funds you can get the NAV price at the end of the day.

If you rebalance using triggers it can be a bit frustrating to not know what a fund price will be at the end of the day. Will it actually end over your trigger or suddenly drop 1% just before the close and come nowhere close to your trigger. That's where I like ETF's, with everything else equal.

You have to consider how you will be managing your investment, in addition to the ER costs.
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Old 05-02-2014, 02:22 PM   #3
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Since they both track the same index I wouldn't put too much thought into it. Which one is easier for you? If you have the money in Fidelity do it with them and vice versa.
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Old 05-02-2014, 04:23 PM   #4
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I used to prefer ETFs (since I could "control" the price I was buying/selling) until I realized re-balancing ETFs was more painful.
Your costs will be based on the $ amount you are looking to invest and how often you will buy/sell. If you are stuck to Fidelity for whatever reason, I would go with FUSEX.

My preferred order would be
1. VFIAX (Admiral @ 0.05% ER) in Vanguard account
2. VOO in Vanguard account, since long term I would consolidate in Vanguard and if you convert ETF->Fund, your cost basis stays
3. FUSEX in Fidelity
4. VOO in Fidelity
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Old 05-03-2014, 06:02 AM   #5
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Are you aware of FUSVX which has a lower e.r. than FUSEX?

Here is another link: ETFs vs mutual funds - Bogleheads

ETFs settle in T+3, mutual funds in T+1. This may have consequences if you wish to get cash out after selling: The ETF will take 2 days longer.

Dividends are paid a few days later, too, and your broker decides the price when automatically re-invested.

Quote:
..., since long term I would consolidate in Vanguard and if you convert ETF->Fund, your cost basis stays
At Vanguard, one can convert some funds to ETFs, but one cannot convert ETFs to funds except by selling the ETF shares and buying the fund shares. Thus the cost basis does not stay the same.
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Old 05-03-2014, 10:39 AM   #6
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Quote:
Originally Posted by LOL! View Post
At Vanguard, one can convert some funds to ETFs, but one cannot convert ETFs to funds except by selling the ETF shares and buying the fund shares. Thus the cost basis does not stay the same.
Thanks LOL!
I didn't know that. I have done Fund to ETF in the past with no tax consequences and wrongly assumed it would work the other way. Good to know since I had plans at some point to move ETFs from other brokerages to Vanguard and was counting on doing ETF to Fund conversion. Now I need to rethink. Of course, I can still do it within my IRAs. Thanks.
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