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Vandguard ETF Vs Vanguard Mutual Funds
Old 11-16-2010, 12:38 PM   #1
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Vandguard ETF Vs Vanguard Mutual Funds

What is the advantage/ disadvantage of Vanguards ETF compared to regular mutual funds?
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Old 11-16-2010, 12:44 PM   #2
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Google is your friend: Vanguard Mutual Funds vs. ETFs: The Decision Process » My Money Blog
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Old 11-16-2010, 12:49 PM   #3
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The short answer is...

with ETF you can take capital gains when you want to by selling appreciated shares

with mutual funds their trading (and the markets) determines what capital gains you get each year.

As I understand it vanguard now has the same expense ratios for either their ETFs or their mutual funds. There is no difference. But with other companies ETFs may have lower expense ratios than the equivalent mutual funds.

For thinly traded markets some ETFs may trade at a discount or premium to the underlying assets in a mutual fund.
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Old 11-16-2010, 01:23 PM   #4
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ETF has a stated goal of either track an index or a mutual fund.
How are ETFs managed? What is your recourse if a paticular ETF is mismanaged? I have concerns here.
It is easier to ask questions than research answers. I will try to return with answers. Feel free to chime in in the mean time.

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Old 11-16-2010, 03:02 PM   #5
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The "Flash Crash" in May pointed up the potential very short term volatility in ETFs. I don't know if the problem has been fixed, but it did scare some people, and gave many others reason to question whether MFs and ETFs will really behave in exactly the same way under extreme market conditions. There are lots of high-frequency traders out there and some are using ETFs to play their little reindeer games. It caused massive price distortion at least once.

This site has some examples.

Quote:
1. iShares Russell 1000 Growth Index Fund (IWF)

Want to see $11 billion disappear in a matter of seconds? Take a look at the chart below; IWF briefly traded for a penny yesterday.
Thursday Open: $51.42
Thursday Low: $0.01
Thursday Close: $50.11
Since MFs get one price per day (at the end of trading), this price volatility didn't affect them. I suppose it could (if the crazy selloff happened at the last moment of the day)

Maybe it will never happen again, and maybe it wouldn't affect any "normal" trader (unless you had a stop-loss order in effect), but it's something to think about.
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Old 11-16-2010, 07:22 PM   #6
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A list of advantages/disadvantages: Bogleheads :: View topic - Where is the big advantage in ETFs?

The flash-crash was a big advantage for ETFs --- you could buy at a 10% discount that day that you could not do if you wanted a mutual fund.

And the chart posted by samclem is not legit as all trades were busted below a certain price drop.
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Old 11-16-2010, 08:10 PM   #7
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Originally Posted by samclem View Post
The "Flash Crash" in May pointed up the potential very short term volatility in ETFs.
Maybe it will never happen again, and maybe it wouldn't affect any "normal" trader (unless you had a stop-loss order in effect), but it's something to think about.
Steps have been taken, although maybe the word "fix" is overoptimistic.

I've heard that many of those penny-a-share trades were voided. But again I don't know if that's "all" or if there were a few instant millionaires/paupers created that day.
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Old 11-16-2010, 10:05 PM   #8
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Originally Posted by LOL! View Post
And the chart posted by samclem is not legit as all trades were busted below a certain price drop.
Yes, according to this article:
Quote:
Regulators ended up cancelling trades in U.S.-listed securities that saw declines of 60% and worse during the five-minute meltdown. About 70% of the busted trades involved ETFs, the Securities and Exchange Commission and the Commodity Futures Trading Commission said in a joint report on the day’s chaos.
“ETFs as a class were affected more than any other category of securities,” according to the report.
The $12 billion iShares Russell 1000 Growth Index Fund. . . , for example, was one of the large ETFs that went haywire. The fund opened at $51.42 but some trades crossed as low as a penny a share in the height of the confusion before the fund closed at $50.11.
The transactions were later broken by the SEC if the decline was 60% or more.
Cancelled trades recently at two large ETFs have raised more questions about their durability.


On Oct. 1, the iBoxx Investment Grade Corporate Bond Fund ... had trades cancelled following a brief, rapid decline. A spokeswoman for BlackRock Inc.... , the ETF’s manager, said the drop was due to an “erroneous trade” and that standard exchange rules were triggered.


NYSE Arca said it would cancel trades in the SPDR S&P 500 ETF when its price plunged about 10% on Oct. 18. The exchange blamed a delay in the closing auction due to an issue with a software release.
To folks who bought ETFs because "they are just like mutual funds," all this might seem like a little bit of unanticipated excitement.
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Old 11-16-2010, 10:40 PM   #9
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Originally Posted by LOL! View Post
The flash-crash was a big advantage for ETFs --- you could buy at a 10% discount that day that you could not do if you wanted a mutual fund.
i disagree, the big disadvantage of having etfs was you could have freaked out and sold in that 10 minute drop, mutual funds prevented you from doing that.

is the glass 1/2 empty or 1/2 full? depends upon how you look at it. personally i think etfs allow you to do dumb things at the wrong time where mutual funds protect you from you.
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Old 11-17-2010, 07:58 AM   #10
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If you react that way to stock market moves, then maybe you should not own any stocks whether inside a mutual fund, an ETF, or directly.
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Old 11-17-2010, 02:08 PM   #11
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Originally Posted by LOL! View Post
If you react that way to stock market moves, then maybe you should not own any stocks whether inside a mutual fund, an ETF, or directly.
yeah but a 900 point drop? i wouldn't call that anything short of terror. i still think for me etf's would be too tempting to do dumb things but ymmv.
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Old 11-17-2010, 03:38 PM   #12
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I have half my stash at Fidelity. I needed more bonds but didn't like their choices, so I bought a Vanguard Bond ETF - cheaper than owning the same Vanguard bond mutual fund thru Fido.
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Old 01-10-2011, 12:42 AM   #13
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It seems to me that ETFs could be a lot cheaper than mutual funds.

Eg, take a no-load, no transaction fee mutual fund. A typical expense ratio is 1-1.5%, right? If $10,000 is invested on a yearly basis it would cost about $100.

For an ETF with an expense ratio of 0.5%, it would be $50 for 1 year + commission which could be $6 with a discount broker. So unless someone is trading frequently I think that ETFs would be a lot cheaper and also not actively managed like mutual funds which is how the Bogleheads advise.
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Old 01-10-2011, 06:13 AM   #14
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inquisitive, almost all the ETFs you would want to use have an equivalent mutual fund share class with the same very low expense ratio. That is, the mutual funds that you would use have expense ratios of 0.05% to 0.25% (not your 1-1.5%). So whether you use low-expense ratio ETFs or low-expense ratio mutual funds, the expense ratio is not the deciding criteria.
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Old 01-10-2011, 08:17 AM   #15
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Originally Posted by LOL! View Post
inquisitive, almost all the ETFs you would want to use have an equivalent mutual fund share class with the same very low expense ratio. That is, the mutual funds that you would use have expense ratios of 0.05% to 0.25% (not your 1-1.5%). So whether you use low-expense ratio ETFs or low-expense ratio mutual funds, the expense ratio is not the deciding criteria.
So what would the deciding criteria be, when capital gains are paid, minimum amounts to buy in, ect
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Old 01-10-2011, 08:36 AM   #16
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See post #6 above.
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Old 01-11-2011, 02:38 AM   #17
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inquisitive, almost all the ETFs you would want to use have an equivalent mutual fund share class with the same very low expense ratio. That is, the mutual funds that you would use have expense ratios of 0.05% to 0.25% (not your 1-1.5%). So whether you use low-expense ratio ETFs or low-expense ratio mutual funds, the expense ratio is not the deciding criteria.
is there a vanguard wellsley ETF? if so, what is the symbol?
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Old 01-11-2011, 09:18 AM   #18
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"is there a vanguard wellsley ETF? if so, what is the symbol?"
No, if there is an ETF you want, especially a Vanguard ETF, then there is an equivalent mutual fund, not the other way around.
AFAIK all the original ETFs were linked to some index, Vanguards still are, recently some ETFs that have a more active managed list of assets have emerged.
Not an ETF expert here but I suspect that there would not be much demand for a balanced fund ETF since ETFs are usually bought for their market focus.
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