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VTSMX vs VTI ???
Old 04-19-2016, 02:52 PM   #1
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VTSMX vs VTI ???

Looking ahead to FIRE'ing in a couple of months (if I don't chicken out and give into OMY syndrome .... ;-) ). At that point, I'll be converting my 401K to an (self-directed) IRA, and have decided to go with the "lazy" 3-fund portfolio (well, I may add some REIT fund to that as well). Anyway, I don't think I've ever really understood the difference between a regular "index fund" (such as Vanguard's VTSMX) and an ETF fund (such as Vanguard's equivalent VTI). VTSMX has an E.R. of 0.17%, whereas ETF has an E.R. of .01% ... but I would qualify for so-called "Admiral shares" of VTSMX, which also has an E.R. of .01%.

If they are basically the same portfolio, why are the E.R. different? (why would ANYONE pay that higher E.R. for VTSMX?)

I don't have an account at Vanguard, if that makes any difference - will be buying this through an outside brokerage account (TIAA-CREF), which charges a flat $7.95 brokerage fee.

So ... is there any advantage to VTI vs "Admiral shares" of VTSMX?
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Old 04-19-2016, 04:00 PM   #2
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Quote:
Originally Posted by merlin3942 View Post
Looking ahead to FIRE'ing in a couple of months (if I don't chicken out and give into OMY syndrome .... ;-) ). At that point, I'll be converting my 401K to an (self-directed) IRA, and have decided to go with the "lazy" 3-fund portfolio (well, I may add some REIT fund to that as well). Anyway, I don't think I've ever really understood the difference between a regular "index fund" (such as Vanguard's VTSMX) and an ETF fund (such as Vanguard's equivalent VTI). VTSMX has an E.R. of 0.17%, whereas ETF has an E.R. of .01% ... but I would qualify for so-called "Admiral shares" of VTSMX, which also has an E.R. of .01%.

If they are basically the same portfolio, why are the E.R. different? (why would ANYONE pay that higher E.R. for VTSMX?)

I don't have an account at Vanguard, if that makes any difference - will be buying this through an outside brokerage account (TIAA-CREF), which charges a flat $7.95 brokerage fee.

So ... is there any advantage to VTI vs "Admiral shares" of VTSMX?
If one is buying or selling small numbers of shares during the accumulation (or decumulatoin) stage(s), the transaction cost can be higher in the VTI fund.

In theory the ETF is superior. In practice, the VTI and VTSMX may be very similar.


Here's some fun links for your info:


http://www.fool.com/investing/etf/mu...ds-v-etfs.aspx


https://investor.vanguard.com/etf/etf-vs-mutual-fund


http://www.investopedia.com/articles...difference.asp
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Old 04-19-2016, 04:13 PM   #3
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There are advantages to VTSAX (admiral) versus VTI (ETF), but they may not matter to you or the advantages of the VTI over VTSAX may matter more.

Here is one of the best pros and cons on the internet:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

For you, I doubt you can buy VTSAX at your TIAA brokerage, so that obviates that choice and you are left with only the ETF. Of course, you could move some money to Vanguard directly and proceed from there.

I think $8 is too much to pay for trades since there are several brokers which do not charge commissions.
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Old 04-19-2016, 04:15 PM   #4
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Quote:
Originally Posted by merlin3942 View Post
Looking ahead to FIRE'ing in a couple of months (if I don't chicken out and give into OMY syndrome .... ;-) ). At that point, I'll be converting my 401K to an (self-directed) IRA, and have decided to go with the "lazy" 3-fund portfolio (well, I may add some REIT fund to that as well). Anyway, I don't think I've ever really understood the difference between a regular "index fund" (such as Vanguard's VTSMX) and an ETF fund (such as Vanguard's equivalent VTI). VTSMX has an E.R. of 0.17%, whereas ETF has an E.R. of .01% ... but I would qualify for so-called "Admiral shares" of VTSMX, which also has an E.R. of .01%.

If they are basically the same portfolio, why are the E.R. different? (why would ANYONE pay that higher E.R. for VTSMX?)

I don't have an account at Vanguard, if that makes any difference - will be buying this through an outside brokerage account (TIAA-CREF), which charges a flat $7.95 brokerage fee.

So ... is there any advantage to VTI vs "Admiral shares" of VTSMX?
I'm not a financial advisor by any means but I soak most of this up like a sponge. First off I think your idea of going to a lazy 3 fund IRA is a pretty smart move. My only caution would be in adding a REIT to it unless it is a ROTH IRA and in that case it is an excellent addition. Their are tax issues with a REIT that the ROTH doesn't have to deal with upon withdrawal. In fact if you researched the lazy three fund portfolio from Bogleheads, you can dig just a little deeper and see where they do like to include the REIT into the funds if they are a ROTH.

I will be doing almost exactly what you are doing with Vanguard in about 11 months but I plan on doing it directly thru Vanguard, not a third party when I move a 401K and a 457 over to an IRA. I plan on getting the admiral shares due to the lower expense ratios as well.

I think any expense ratio of .01% is a very smart move either way you go. I like the ETF's but that is only an opinion, they are both good choices.

Enjoy FIRE'ing it up
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Old 04-19-2016, 05:01 PM   #5
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I think the 0.01% for the expense ratio is a typo. Vanguard.com has the e.r. as 0.05%.
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Old 04-19-2016, 08:32 PM   #6
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You can sell VTI mid day vs the mutual fund. On a big swing day it maybe advantage.


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Old 04-19-2016, 09:09 PM   #7
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Agreed with all the above the key being you can lock in a trade instantly at the bid ask price with ETF VTI vs waiting for an index exchange to clear at MARKET. I owned and made money on VTI in the past based on advice from folks here.
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