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Old 01-29-2013, 11:08 PM   #21
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One BIG difference is that non US citizens, non US resident cannot buy a MF like Vanguard Dividend Appreciation Index Fund (VDAIX) if they live outside of the US, but they can buy Dividend Appreciation Index ETF (VIG) from the NYSE.

For US investors, the 2 Big differences are
1. VIG's valuation changes minute by minute during a trading day, and MF prices are calculated once a day at the end of the day. So for traders, that is one difference.
2. When you sell shares of a Vanguard MF, Vanguard does not allow you to buy back the same fund for at least 90 days. There is no such restriction for ETF. So if you are a market timer, you need to do ETF.
How about auto reinvestment? Especially if you have an account with vanguard? Does vanguard allow fractional ownership of shares for the ETF?
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Old 01-29-2013, 11:19 PM   #22
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How about auto reinvestment? Especially if you have an account with vanguard? Does vanguard allow fractional ownership of shares for the ETF?
From Vanguard web site:
"This no-fee, no-commission reinvestment program allows you to reinvest dividend and capital gains distributions from any or all eligible stocks, closed-end mutual funds, or exchange-traded funds (ETFs) in your Vanguard Brokerage account in additional shares of the same securities. All eligible distributions paid by the securities you designate must be reinvested."

So like stocks, you can reinvest the whole dividend and get fractional shares.
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Old 01-29-2013, 11:31 PM   #23
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From Vanguard web site:
"This no-fee, no-commission reinvestment program allows you to reinvest dividend and capital gains distributions from any or all eligible stocks, closed-end mutual funds, or exchange-traded funds (ETFs) in your Vanguard Brokerage account in additional shares of the same securities. All eligible distributions paid by the securities you designate must be reinvested."

So like stocks, you can reinvest the whole dividend and get fractional shares.
It seems like etfs would be the better choice if you are choosing between vanguard mfs or etfs just based off of the expense ratios. Is there a hassle factor that I am forgetting for non taxed roth accounts?
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Old 01-29-2013, 11:44 PM   #24
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It seems like etfs would be the better choice if you are choosing between vanguard mfs or etfs just based off of the expense ratios. Is there a hassle factor that I am forgetting for non taxed roth accounts?
Through some accounting practice that I do not fully understand, MF cost basis somehow got put higher by averaging over time, so there will be less LTCG tax when you sell. Capital gain on ETF seems to be the simple mathematical difference between price you paid when you bought, and the selling price you got later. Cost basis is not a factor in IRA or Roth. If you have fractional share of ETF left over when you sell, the brokerage will automatic sell those fractional left over without commission.

You should read the commentds of Golf Cruiser and LOL! in this thread, those are helpful in sorting out between ETF and MF.
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Old 01-30-2013, 01:47 AM   #25
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quite a strange thread to me........"everybody" says ETFs have lower ERs than MF but I see no data. Are they/you referring to the avg ETF vs the avg MF?
I could believe that, I suppose, but I have trouble believing that a good ETF could be much better than a good index MF.
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Old 01-30-2013, 05:43 AM   #26
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It seems like etfs would be the better choice if you are choosing between vanguard mfs or etfs just based off of the expense ratios. Is there a hassle factor that I am forgetting for non taxed roth accounts?
The expense ratios of vanguard ETFs are the same as the expense ratios of Vanguard admiral and signal share class mutual funds. That is, there is no difference, so the expense ratio is not necessarily a reason between choosing mfs or etfs.

Also upthread it was mentioned that Vanguard would not let you buy back fund shares that you had sold in the previous 90 days. This is not true either. One has to read and follow the fine print to overcome this hassle.

The first thread I linked contradicts most of the inaccuracies stated here on this thread.

The biggest difference from reading forum threads is that many folks cannot figure out whether to choose a market order or limit order for an ETF and how to set a limit price. It gives them an anxiety attack.

Another difference between them: ETF trades settle in T+3 days. Mutual fund trades settle in T+1. The consequence is that if you sell an ETF to raise cash, you will not be able to get the cash into your checking account until 3 days later (and maybe that takes an extra day for ACH, so 4 days later).

Also I would not submit an ETF order while the market is closed because it is very easy to not get a fair price. In contrast, when you submit a mutual fund order, you always get a fair price ... even if you submit an order when the market is closed.

I own ETFs and mutual funds.
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Old 01-30-2013, 07:08 AM   #27
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Have fun trying to compute your basis with decades of reinvested dividends!
I wonder how far back TurboTax will do it for you. (I've only had to try it going 10 years back.)
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quite a strange thread to me........"everybody" says ETFs have lower ERs than MF but I see no data.
I think the issue is that it was true for a while, but recently a lot of index mutual funds have lowered ERs, so in many cases it isn't really a significant difference anymore.
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Old 01-30-2013, 08:46 AM   #28
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Only slightly on Topic:

Liquidity is a consideration with ETFs:

The 8 Largest ETFs On Earth

Compare to the cost of MFs:

5 Lowest Cost ETFs on Earth
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Old 01-30-2013, 10:10 AM   #29
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I found the pros and cons of each by google:
ETFs vs Mutual Funds - Bogleheads
This is excellent. Thanks LOL!

And thanks to everyone else who posted in this thread.
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Old 01-30-2013, 12:31 PM   #30
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I used to own ETFs. I sold them all* and bought their corresponding MFs. All Vanguard funds. Why?

1. I get the same price with MFs (COB) when shifting assets around between different accounts. This is usually due to rebalancing and trying to keep my accounts well organized. For example, I may need to rebalance between a 403b and an IRA. The 403b holds all my allocation to Emerging Markets and I need to buy more. This means I will sell Total US in the 403b to buy EM. I'll then buy the equal amount of Total US in the IRA to maintain my allocation. The buy/sell value of Total US is equal between both accounts, since both are priced COB. Using ETFs, I always waited until end of market close to (hopefully) get about the same price for buying/selling. I found this annoying.

2. No bid/ask spreads. No commission on trades.

3. No waiting for settlement.

4. Related to #2, but it irks me that somebody was making money on my buy/sell of ETFs for what I perceive as no added value.

* Well, I still hold one ETF: international small cap (VSS). I hope that Vanguard eventually releases an admiral version with the same ER as the ETF. I can't bring myself to pay higher ER for the same asset, but the day the MF costs the same, I'll sell the ETF and buy the MF.
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Old 01-30-2013, 12:59 PM   #31
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If you're just starting out, MFs have initial buy-in amount and additional buy-in minimums. You can buy as little as 1 share in an EFT. It may not be a big deal for a rollover, but it can limit what you can buy with adding $5,000 in an IRA.
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Old 01-30-2013, 01:39 PM   #32
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If you're just starting out, MFs have initial buy-in amount and additional buy-in minimums. You can buy as little as 1 share in an EFT. It may not be a big deal for a rollover, but it can limit what you can buy with adding $5,000 in an IRA.
Good point, but not applicable here. This is my 401k of more than a decade. It's a good chunk of change.

With the latest acquisition/merger/sale we'll have the option to roll it out, or roll it into the purchasing company's plan. I don't see any value in doing the later. I have enough funds outside the 401k to fund my pre-59.5 expenses.

This is the 4th or 5th sale/merger/split/acquisition corporate move since I've been with the employer, and first time we've had the opportunity to roll it out. I'm definitely going to take advantage of it.
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Old 01-30-2013, 02:21 PM   #33
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2. When you sell shares of a Vanguard MF, Vanguard does not allow you to buy back the same fund for at least 90 days. There is no such restriction for ETF. So if you are a market timer, you need to do ETF.
By PHONE. There is no such restriction when transacting by mail. Also, (from the last transaction I made) the restriction is only 60 days (for the funds I bought/sold). Probly best to check each prospectus.
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Old 01-30-2013, 02:45 PM   #34
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By PHONE. There is no such restriction when transacting by mail. Also, (from the last transaction I made) the restriction is only 60 days (for the funds I bought/sold). Probly best to check each prospectus.
The frequent trading restriction prevents one from buying back into the fund for 60 days, I thought it was 90. It also appears that the restriction does not apply when ordering was sent in by mail, you are right. I have that restriction when I switched from one fund to another, and I did it on line at the website.
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Old 02-02-2013, 03:36 PM   #35
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I'll add one more, but this one might be specific to holding MF/ETFs at Vanguard.

MF account tax form (1099-B) is already available. The brokerage account 1099-B won't be available until mid-February.

And I was hoping to get my taxes done this weekend...
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Old 02-02-2013, 03:55 PM   #36
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My 401k has no good choice for a bond fund in the basic account that meets my criteria so I use the self-directed brokerage account to buy Vanguard's BND ETF. The SDBA charges 49.95 per trade for MFs but only 9.95 per trade for stocks or ETFs. I save a bit more by accumulating contributions in the guaranteed fund and buy the ETF once a quarter or so.

Well, actually they have a large set of transaction-free MFs in the SDBA but they all come with about a 5.5% front-end load, even the index funds. Yeow!

Anyway, this is another example where ETFs can be advantageous.
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Old 02-02-2013, 09:51 PM   #37
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Not with Vanguard, if you have enough for Admiral class funds, at least for the ones I own. The fees are identical. Vanguard has a cost comparison tool and it shows that admiral class mutual funds are slightly better due to the bid/ask spread. Maybe being able to buy and sell mid-day offsets that.

Some Vanguard funds have limits on buying and selling within a 2 month period. ETFs may not have those same limits.
The ETFs do not have the same limitations. My VG rep steered me to the ETFs when I wanted to do a sale and same day buy back to crystalize some gains at the 0% capital gains rate.
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Old 02-02-2013, 09:55 PM   #38
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.....And I was hoping to get my taxes done this weekend...
Done, filed and accepted by both federal and state.
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Old 02-02-2013, 10:03 PM   #39
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The ETFs do not have the same limitations. My VG rep steered me to the ETFs when I wanted to do a sale and same day buy back to crystalize some gains at the 0% capital gains rate.
Now that I'll be doing these sales more often I'll have to give ETFs another look.
The Boglehead site linked earlier in this thread did give one simple workaround to the 60 day VGD prohibition on re-buying that I should have thought of: If I plan to sell 100 shares of a MF and re-buy 100 shares (to reset their basis to a higher level), just buy the "replacement" shares first, then sell the old shares. You wind up exactly the same as if you'd sold and then bought. Of course you need to have extra funds available to do this.
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Old 02-02-2013, 10:15 PM   #40
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Another workaround if your are working with Total Stock is to sell Total Stock and buy a combination of 500, Mid-Cap Index and Small-Cap Index (or vice versa) because they are essentially the same.

I also have used Total International Stock Index and FTSE ex-US interchangeably to sideskirt the limit.

As you note there is a way shown on bogleheads to do a one-time recurring transfer that dances around the rule as well.
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