ETFs

[yakers]

I assume that the FIRE and money board is better for this question that the stock picking board.

Where do I go to learn more about ETFs? So far I have been strongly in favor of index funds (my main 401k type account is a target retirement fund) and some other low expense mutual funds like VG Wellesley and DRIP stocks which have really low fees. In the accumulation phase this has worked well as I made small monthly contributions, which is all I had. But I expect to retire in about 6 months (188 days, but who’s counting?) and I am wondering if ETFs are not a better thing to buy now than my DRIP funds and even maybe reduce some mutual funds in favor of ETFs. If I held 5 or 10 of these I could sell, in say five years, the top performing one each year to spend in retirement. Does this look like a good use of ETFs?

Any ETF knowledgeable people on the board who can provide a good way to evaluate ETFs? Is the ER the key? Or how many stocks they hold? Or only ones that follow an index? I would tend to trust Vanguard more than most but it looks like they may not be the best source of ETFs.

 

[LOL!]

Dated, but absolutely superb: The Seeking Alpha ETF Investing Guide - Seeking Alpha
Pro/cons/comparison (i.e. evaluation): ETFs vs. Index Mutual Funds
Rick Ferri will have a new book on ETFs, coming out in late Fall 2007.

 

[ats5g]

See also:

ETF connect learning center

Vanguard's ETF center with
Calculate and compare costs for Vanguard ETFs and mutual funds.

ETFs are just another form of an open ended mutual fund. You can just buy them at anytime during the trading day, where as w/ MFs, you always buy and sell at prices determined at the end of the trading day.

fyi - you should be aware that Vanguard's ETFs are just share classes of their existing index funds, so their ETFs will be exactly as tax efficient as the plain old index funds [i.e. VTI vs. VTSMX].

If I had a brokerage acct, I'd probably use ETFs over index funds [b/c they'd be cheaper to buy], but if I had the index funds directly with Vanguard, I don't really see the need to switch over to ETFs. Plus, the expense ratios of Vanguard's admiral funds are almost as low as the ETFs.

- Alec

 

[maddythebeagle]

I use the ETFs in my brokerage account as noted....another source is simply yahoo finance with expense ratios, etc.

 

[cute fuzzy bunny]

Do also note that some outfits give you better service levels if you hold mutual funds vs etfs.

Vanguard for example requires that a flagship customer have $500k of their $1M invested in their mutual funds.

 

[FinanceGeek]

youch...

Do also note that some outfits give you better service levels if you hold mutual funds vs etfs.

Vanguard for example requires that a flagship customer have $500k of their $1M invested in their mutual funds.

Didn't know that, thanks for the heads up. There is (AFAIK) no similar requirement at Fidelity to maintain Gold status but again my impression of VG is that they don't really want to operate a discount brokerage business, they really only want your account if you're going to buy and hold their funds. Fido is more of a generic discount brokerage house that is happy to sell you their own MFs too.

 

[RunningBum]

I did a quick comparison of Vanguard ETF vs index funds. They even have a calculator. It looks to me like if you will buy and hold for awhile, or at least do it in large chunks, an ETF will be better because of the slightly lower expense. But if you are doing monthly investments or withdrawals, the brokerage fees will make the ETF a lot worse than the corresponding index fund.

One strategy for that might be to keep some in the index fund for buying/selling/rebalancing, and some core amount in an ETF that you won't touch for quite some time. But in the Vanguard case, it probably wouldn't be worthwhile if you knock yourself out of the admiral fund into investor class, or as previously mentioned, out of their flagship service.

I don't really like the idea of holding 5 or 10 ETFs and selling the top one because it would be too much of a rebalance, if you are talking about selling the whole thing. You would be getting completely out of your top-performing sector rather than just evening things out. It's less drastic to rebalance among index funds.

Is there much more to it than that?

 

[clifp]

If you are primarily a Vanguard customer (i.e 50%+ assets with them) I think you are probably better off using Admiral class index funds for the reasons Running talked about. However for the rest of us Vanguard and few other ETFs make more sense due to lower cost and great flexiblity.

 

[cute fuzzy bunny]

I agree. A lot of the etf's only have a .02% or so advantage over the admiral funds. For flexibility, the funds seem to win. Its a big plus to go from a 2% fund to a .2% fund. To drop from a .10% to a .08% ER is probably not worth the trouble.


I looked at converting to ETF's. Not worth it for me.

 

[Olav23]

One other plus for the ETF share class over Vanguard funds in particular:

No early redemption or active trading fees. These can be sizable on some of the funds.

I think the small-cap tax advantaged fund has a 5 year holding period to avoid fees.

Others have a 2% fee if traded within 180 days. I've been bitten by this once, and it was painful.

 

[ats5g]

Olav,

Most of the small cap index funds/etfs are going to be distributing some dividends that don't qualify for the lower rates. For example, in 2006, only 70% of NAESX's dividends were QDI, while 100% of TM Small cap's dividends were QDI.

- Alec

 

[Spanky]

I am planning to convert all my Vanguard index mutual funds to their equivalent ETFs since I tend to purchase in large amount.