DQOTD: Is there by difference between BND and VBTLX in tax deferred/free?

[Midpack]

As far as I can tell, there’s basically no difference other than 0.02% expenses. What am I missing? Even in a taxable account, I can’t see any significant reason to buy one over the other at least for a passive indexed bond fund - a small possible tax benefit in ETFs.

All my taxable assets are in mutual funds, only because I’ve owned them since before ETFs and there’s no reason to take the tax hit converting them to ETF equivalents?

 

[Exchme]

There is no tax hit to convert to the equivalent ETF. There are some regulatory issues with ETFs for folks in the financial services industry, but for the rest of us, the difference will be very small.

For some brokerages, there is a real advantage to ETFs in that mutual funds would disburse capital gains, making things much less tax efficient. However, Vanguard uses system where they avoid capital gains distributions in the mutual funds that have an ETF equivalent by piggybacking off the ETF, that shifts some costs to the ETF, which is small enough as to not really be noticeable to the ETF costs.

With Vanguard funds that have an ETF equivalent then, the only practical difference is that with ETF you buy and sell in the market while it's open, getting whatever the instantaneous price is. For mutual funds, you can submit your order whenever you want, but it will only execute at the end of day price. If you need to move money around, say to rebalance, it's a bit easier with a mutual fund, you turn in one order to sell $X of stocks and buy $X of bonds. With ETFs, you submit 2 orders, first one to sell and then one to buy.

 

[Midpack]

There is no tax hit to convert to the equivalent ETF. There are some regulatory issues with ETFs for folks in the financial services industry, but for the rest of us, the difference will be very small.

I don’t believe that’s the case for VBTLX or many of the other mutual funds I have in our taxable account. https://personal1.vanguard.com/pdf/...L:XX:MARVELETFPDF18:AQ:INVT:ETF:XX:XX:X:XX:XX

 

[MichaelB]

As far as I can tell, there’s basically no difference other than 0.02% expenses. What am I missing? Even in a taxable account, I can’t see any significant reason to buy one over the other at least for a passive indexed bond fund - a small possible tax benefit in ETFs.

All my taxable assets are in mutual funds, only because I’ve owned them since before ETFs and there’s no reason to take the tax hit converting them to ETF equivalents? It’s a different asset class of the same fund, no converting from one to the other is not w taxable event.

Its a different asset class of the same fund so an exchange from one to the other is not a taxable event.

When I did one a few years back, I later discovered the cost basis info did not convert as well, and I had to rebuild it by manually, which was very time consuming. Not sure if Vanguard has changed this.

 

[pb4uski]

As far as I can tell, there’s basically no difference other than 0.02% expenses. What am I missing? Even in a taxable account, I can’t see any significant reason to buy one over the other at least for a passive indexed bond fund - a small possible tax benefit in ETFs.

All my taxable assets are in mutual funds, only because I’ve owned them since before ETFs and there’s no reason to take the tax hit converting them to ETF equivalents?

I agree as long as you are cognizant of any premium or discount between the ETF price and NAV for BND when buying and selling, though the premium or discount is usually pretty low. Obviously, VBTLX is always bought or redeemed at NAV.