Vanguard: Index Fund vs ETF?

[EvrClrx311]

I am trying to track down the main differences between these two investing types. In a nutshell what is the difference between an Index Fund and an ETF?

For example:
VSMAX - Vanguard Small Cap Index
VB - Small Cap ETF

They both have an expense ratio of 0.09% and both have identical 10 year average returns (6.40% and 6.41%)


Another example:
VGHCX - Vanguard Health Care Fund
VHT - Heath Care ETF

I notice that VHT has a lower expense ratio (0.09%) while VGHCX has (0.34%), so what would be the advantage of investing in VGHCX?

[MBAustin]

Here's some info directly from VG

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

[samclem]

Quote:

Originally Posted by EvrClrx311 Another example: VGHCX - Vanguard Health Care Fund VHT - Heath Care ETF I notice that VHT has a lower expense ratio (0.09%) while VGHCX has (0.34%), so what would be the advantage of investing in VGHCX?

In addition to the info at the link provided by MBAustin, if you'll qualify for the Admiral version of the fund ($50K min balance for VGHCX --> VGHAX), be sure to use the fees for those Admiral shares when doing the comparison. In this case, the ER is .29, so you can see the advantage of using the fund instead of the ETF. Vanguard will automatically upgrade investors to the Admiral shares when their balances in the fund gets high enough.

[hnzw_rui]

VGHCX is actively managed. You want VHCIX for Vanguard Health Care Index (0.10% ER, $100K minimum investment).

Mind, VGHCX seems to be doing fairly well compared to the index.

https://www.portfoliovisualizer.com/...alAmount=10000

[DrRoy]

Another difference is that an ETF trades on the market all day long like a stock does. A mutual fund only trades at the daily closing price.

[nwsteve]

Quote:

Originally Posted by DrRoy Another difference is that an ETF trades on the market all day long like a stock does. A mutual fund only trades at the daily closing price.

To hitchhike on the previous poster--you can make a trade any time of day without being stuck with end of day values which can be helpful with our volatile markets. In addition, if you want Vanguard index fund outside Vanguard, the ETFs can be bought in any brokerage account. I have mine in Fidelity accounts. Only cost is 7.95 for the trade. If I wanted to buy the mutual fund, I pay out of network fee to Fido of 75 for the same trade.
Nwsteve

[Fedup]

Quote:

Originally Posted by samclem In addition to the info at the link provided by MBAustin, if you'll qualify for the Admiral version of the fund ($50K min balance for VGHCX --> VGHAX), be sure to use the fees for those Admiral shares when doing the comparison. In this case, the ER is .29, so you can see the advantage of using the fund instead of the ETF. Vanguard will automatically upgrade investors to the Admiral shares when their balances in the fund gets high enough.

No they don't. But they have a button for you to upgrade if you accept. I have not accepted yet. I'm not done buying, I want to know my average share price through DCA.


Sent from my iPad using Early Retirement Forum

[LOL!]

Something else to read which goes into quite some depth but is not too long:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

One can buy the ETF at any US broker, but the mutual fund is often only available at Vanguard unless one wants to pay a hefty commission.

[Lsbcal]

Quote:

Originally Posted by EvrClrx311 I am trying to track down the main differences between these two investing types. In a nutshell what is the difference between an Index Fund and an ETF? For example: VSMAX - Vanguard Small Cap Index VB - Small Cap ETF They both have an expense ratio of 0.09% and both have identical 10 year average returns (6.40% and 6.41%)

Here is my opinion which really pertains a lot to how I invest. First, do not buy an ETF because you are a cool guy and want to play the market. Buy it because it fulfills a real investment need.

Some people find that their broker provides high ER funds and low ER ETF's so they think this is a positive characteristic of an ETF. But not necessarily nowadays ... at least at Vanguard.

One other subtlety I started to appreciate because I want a "fair value" price. I think the international funds might be best bought in a fund. The internationals go somewhat stale in pricing as their foreign markets close (and ours remains open to price their securities). Vanguard gives so called "fair value" pricing in their funds. Their foreign ETF's are perhaps a different situation. I think, but don't have a good study, that the pricing for switches of foreign (to foreign or US) is better using the VG end of day funds. On the other hand, if you plan to hold some years then this is probably not important.