Do you buy VG MF or ETF ?

[NewToEverything]

Do you buy VG MF or ETF ? Other than the obvious differences (such as lower ER and no minimium for ETF) what else do you look at when deciding between the two ?

 

[ERD50]

If you do a search on the terms, you should come up with a complete list of the pros/cons.

In short, MF often allow for no-fee additions, so if you are doing a regular (say monthly) contribution, the MF may result in lower fees.

-ERD50

 

[NW-Bound]

I had VG MF's in accounts directly with Vanguard. Outside of the Vanguard accounts, I have VG ETFs.

I prefer ETFs because I like the ability to buy/sell during the trading day and not at the market close, although I traded these only a couple of times in the past 10 years.

Also, I am able to sell covered call options on the ETF shares, though I have not done that either, preferring to do so on shares of other more volatile stocks or ETFs because the premium is much higher.

 

[OldShooter]

I am the exact opposite of @NW-Bound. I can count years' of fund trades on the fingers of one hand. I have absolutely no interest in trading during the market day or in selling covered calls.

I slightly prefer conventional mutual funds for a somewhat obscure reason: "Authorized Participants." (https://www.investopedia.com/terms/a/authorizedparticipant.asp) A career in business has taught me that when participants in an endeavor do not have roughly similar financial motivations, bad things can happen. The Authorized Participants are, it seems, basically arbitrageurs. They have some loyalty to the fund because the fund can cut de-authorize them, but they have absolutely no loyalty to us poor schlubs who own fund shares. So ... I think they add risk to quoted spreads particularly in time of high volatility. If things get really bad, they might simply move to the sidelines. I have absolutely no idea how that might affect me, but my basic business instinct is to avoid unnecessary risk.

 

[wanaberetiree]

VG in general moving towards ETFs

Read this https://www.bloomberg.com/graphics/2019-vanguard-mutual-fund-tax-dodge/

If you compare this for example VTSAX vs VTI - ETF has 0.03% expense ratio less that MF

 

[Alan]

We hold VG ETFs in taxable accounts because they “report into HMRC” which means they get the favorable tax treatment given to qualified dividends and capital gains.

In our IRAs and Roths we hold MF’s as the tax treatment is the same by HMRC and the IRS, so that is where we hold our Wellington and Wellesley funds.

 

[FreeBear]

Do ETF's allow automatic and free dividend reinvestment (DRIP)?? Is this still true if, for example, you hold a Vanguard ETF in a Fido or whatever account?


I'm in all in mutual funds mainly due to free and automatic dividend reinvestment. Also, I don't "trade", just sell very occasionally to replenish cash reserves for living expenses.

 

[wanaberetiree]

Do ETF's allow automatic and free dividend reinvestment (DRIP)?? Is this still true if, for example, you hold a Vanguard ETF in a Fido or whatever account?


I'm in all in mutual funds mainly due to free and automatic dividend reinvestment. Also, I don't "trade", just sell very occasionally to replenish cash reserves for living expenses.

I think ETFs will do reinvestments (you’ll need to doubt check) but automatic withdrawal may have some challenges

 

[youbet]

Do ETF's allow automatic and free dividend reinvestment (DRIP)?? Is this still true if, for example, you hold a Vanguard ETF in a Fido or whatever account?


I'm in all in mutual funds mainly due to free and automatic dividend reinvestment. Also, I don't "trade", just sell very occasionally to replenish cash reserves for living expenses.

At Schwab, my VTI (for example) divs are automatically reinvested with no commission.

I do a combination of MF's and ETF's (Vanguard, Schwab and others) within my Schwab account where my FIRE portfolio is consolidated.

 

[Cobra9777]

We own a mix of Vanguard and iShares ETFs, all housed at Fidelity. Reinvestments are commission-free. iShares ETFs trade free at Fidelity, while Vanguard is $4.95 per trade. We only make 2 or 3 trades per year with a 50/50 chance it will incur a $4.95 commission. Vanguard MFs would be quite costly to trade at Fidelity and we have no interest in housing our accounts at Vanguard. We only own ETFs, primarily to avoid year-end capital gain distributions and because ERs are generally lower compared to an equivalent MF.

 

[HI Bill]

I switched from VG MFs to ETFs for two reasons.

1) I can watch the value intraday (some level of entertainment in the mornings)
2) I can sell and know how much I'm getting, rather than wating till the end of the day or next day. Guess it's my dabble into market timing, but I do think it helps when it's time to update your AA.

 

[IrishMoss]

I use both. Mutual Funds are necessary for auto-investing at VG, you can't set that up with ETFs.

Also some funds (like VWENX) don't have an ETF equivalent.

 

[joylesshusband]

Both.
MFs in traditional and Roth IRA (auto-reinvesting) and ETFs in after-tax (no auto-reinvesting).

The latter - because I use "specific ID" when selling in after-tax, and auto-reinvesting would add too much complexity by generating multitude of lots.).

 

[NewToEverything]

Thank you everyone.

For some of us who are financially-illiterate due to family time constraints, do u guys mind summarizing in even more layman's term about the following ?

When I read the below two articles you guys posted more of my white hair started to grow out... just don't really understand.

1. "Authorized Participants" and thus ETF is no good ?
2. ETF is good because Vanguard figured out a patented way to "even out" the gains by someone else doing some buying ?? Is that what it's talking about ?

At the end of the day, is it a mistake to invest in MF (VTSAX) instead of ETF in my taxable account ? Since the ER is 0.04% vs. 0.03%, would this be a major difference in the future ? Is there a calculator to assess the impact ? Can I exchange the MF into ETF without any hassle ? Should I ?

 

[HI Bill]

Can I exchange the MF into ETF without any hassle ?

Vanguard allows one-time recharacterization of MFs to ETFs or ETFs to MFs. You have to contact them and they do it (no online option). I believe that once you've switched, you can't go back, without incurring gains. Sorry, can't answer the rest of your questions.

 

[wanaberetiree]

U

Vanguard allows one-time recharacterization of MFs to ETFs or ETFs to MFs. You have to contact them and they do it (no online option). I believe that once you've switched, you can't go back, without incurring gains. Sorry, can't answer the rest of your questions.

Only MF to ETF and not any MF
For example VTSAX to VTI will work without tax liability triggered.

 

[OldShooter]

Thank you everyone.

For some of us who are financially-illiterate due to family time constraints, do u guys mind summarizing in even more layman's term about the following ?

When I read the below two articles you guys posted more of my white hair started to grow out... just don't really understand.

1. "Authorized Participants" and thus ETF is no good ?
2. ETF is good because Vanguard figured out a patented way to "even out" the gains by someone else doing some buying ?? Is that what it's talking about ?

At the end of the day, is it a mistake to invest in MF (VTSAX) instead of ETF in my taxable account ? Since the ER is 0.04% vs. 0.03%, would this be a major difference in the future ? Is there a calculator to assess the impact ? Can I exchange the MF into ETF without any hassle ? Should I ?

I think your confusion is due to the fact that there are only small differences between conventional mutual funds and ET Fs. So, for example, my comments on authorized participants were not intended to imply that EFTs were bad. IMO this is a bad aspect but it is a very small consideration. Among the differences, too, are tax considerations for some people in some types of accounts. But again, these are small.

Bottom line: Either type of mutual fund is fine. If you want to dig down a level or two you might find small reasons to prefer one or the other in your portfolio but if you don't want to dig, you don't have to.

Regarding calculators, https://www.dinkytown.net/ is a place you can probably find what you want. They have a bewildering array of calculators, all free. The math between 0.04% and 0.03% is this: Take the numbers .9996 and .9997 to the power of the number of years you want. If you want two years, its just the number squared. So .9997^2 = .9994 and .9996^2 is .9992. Bottom line, over a long period the difference will still be a small percentage but we don't spend percentages, we spend dollars. So you may consider the difference to be significant for you.

 

[joylesshusband]

1. "Authorized Participants" and thus ETF is no good ?

No.

2. ETF is good because Vanguard figured out a patented way to "even out" the gains by someone else doing some buying ?? Is that what it's talking about ?

No.

At the end of the day, is it a mistake to invest in MF (VTSAX) instead of ETF in my taxable account ?

No.

Can I exchange the MF into ETF without any hassle ?

Already answered in posts ##15 & 16.

Should I ?

Entirely up to you.

 

[GreenER]

I hold some Vanguard ETFs at Fidelity but mostly have MF versions at Vanguard. I've not held the ETFs as long, as the brokerage at Fidelity is where workplace retirement funds are migrating to post retirement. I don't know how real this concern is, but I've worried that ETFs are more vulnerable to day trading and hence more volatile. Course, I'm buy and hold so perhaps this is a moot point.

 

[RunningBum]

Regarding calculators, https://www.dinkytown.net/ is a place you can probably find what you want. They have a bewildering array of calculators, all free. The math between 0.04% and 0.03% is this: Take the numbers .9996 and .9997 to the power of the number of years you want. If you want two years, its just the number squared. So .9997^2 = .9994 and .9996^2 is .9992. Bottom line, over a long period the difference will still be a small percentage but we don't spend percentages, we spend dollars. So you may consider the difference to be significant for you.

Come on, if you don't want people to find your posts confusing, don't obscure things like this. The fee percentage directly translates into dollars that get taken out of your investment. They amount to the same thing.

The math between 0.04% and 0.03% is really simple. On $1M, that 0.01% is $100/yr. It's up to the investor whether that fund that takes $100 more out is providing something useful in return.

 

[jIMOh]

Do you buy VG MF or ETF ? Other than the obvious differences (such as lower ER and no minimium for ETF) what else do you look at when deciding between the two ?

I use the sector ETFs from Vanguard- lower minimums and helps me execute the strategy I prefer.

 

[jIMOh]

Do ETF's allow automatic and free dividend reinvestment (DRIP)?? Is this still true if, for example, you hold a Vanguard ETF in a Fido or whatever account?


I'm in all in mutual funds mainly due to free and automatic dividend reinvestment. Also, I don't "trade", just sell very occasionally to replenish cash reserves for living expenses.

I use etrade, I have to check an extra box for this with my ETFs.

 

[jIMOh]

We own a mix of Vanguard and iShares ETFs, all housed at Fidelity. Reinvestments are commission-free. iShares ETFs trade free at Fidelity, while Vanguard is $4.95 per trade. We only make 2 or 3 trades per year with a 50/50 chance it will incur a $4.95 commission. Vanguard MFs would be quite costly to trade at Fidelity and we have no interest in housing our accounts at Vanguard. We only own ETFs, primarily to avoid year-end capital gain distributions and because ERs are generally lower compared to an equivalent MF.

+1 with etrade
I have NTF ETFs from Vanguard and have not paid a commission yet.

 

[OldShooter]

Come on, if you don't want people to find your posts confusing, don't obscure things like this. The fee percentage directly translates into dollars that get taken out of your investment. They amount to the same thing.

The math between 0.04% and 0.03% is really simple. On $1M, that 0.01% is $100/yr. It's up to the investor whether that fund that takes $100 more out is providing something useful in return.

I apologize for confusing you.

 

[grasshopper]

I use ETF because I can take capital gains when I want not when the mutual funds decides. Index ETFS rarely have capital gains on unsold shares and MF do.