Vanguard ETF's or Mutual Funds

[modhatter]

I am curious which of the two you seem to favor, and why. I realize that when you purchase Admiral shares of a mutual fund, your expense ratio is dropped to that of the ETF. One question while on that subject. If you didn't want to buy in at $10,000 initially and wanted to wait it out a bit and only buy a around $3,000 going in, after you add more at later dates and pass the $10,000 mark, will those shares turn into Admiral Shares?

With ETF's, I know there may be some tax differences, and the positive with the mutual funds, as I know it is that you can have your dividends or interest diverted to another bank, whereas the ETF, it must stay in the Vanguard account or be reinvested in additional shares. I am dealing mostly with a taxable account, but also to a lesser degree Roths. I also know that the mutual fund is only repriced at the end of the day as opposed to throughout the day.

That's all I know of the differences, so anything else I should know, and what is your strategy between the two. Talking long term investing here.

 

[hnzw_rui]

I am curious which of the two you seem to favor, and why. I realize that when you purchase Admiral shares of a mutual fund, your expense ratio is dropped to that of the ETF. One question while on that subject.

I prefer mutual funds because they're simpler to manage. There's no bid/ask spread. You can easily transfer funds from one mutual fund to another, no need to sell first, etc.

That said, for certain funds (e.g. Vanguard Health Care Index, $100,000 minimum investment), I have no choice but to go the ETF route.

If you didn't want to buy in at $10,000 initially and wanted to wait it out a bit and only buy a around $3,000 going in, after you add more at later dates and pass the $10,000 mark, will those shares turn into Admiral Shares?

Yup.

https://personal.vanguard.com/us/insights/article/admiral-questions-112013

Wondering how to convert to Admiral Shares?

If you have investments that qualify, it's easy to convert them to our lower-cost Admiral™ Shares—a separate share class of existing Vanguard mutual funds with average expense ratios that are 85% lower than the industry average.* You can have us convert them for you during one of our regular eligibility reviews or do it yourself in just a few simple steps.

Have us do it for you

Periodically, we review shareholders' account balances to see who's eligible for conversion to Admiral Shares. You qualify for Admiral Shares if you invest:

• $10,000 or more in a Vanguard index fund that offers Admiral Shares (the minimum for certain sector index funds and tax-managed funds is $100,000).
• $50,000 or more in a Vanguard actively managed fund that offers Admiral Shares.

(Institutional clients should contact Vanguard for special eligibility rules that may apply to them.)

If you meet the conversion qualifications, we'll notify you during our eligibility review. You'll receive notification from us in plenty of time to opt out before we perform the conversion. However, when you convert, the savings can really add up. Our fund comparison tool lets you see how much you could save—and how much more of your investing dollars would continue working for you—if you choose Admiral Shares.

Do it yourself, at your convenience

The fastest, easiest way to convert to Admiral Shares is online. Just follow these steps:

1. Log on to your account.
2. Select the Buy & Sell tab.
3. Click Convert to Admiral Shares and follow the remaining online instructions. (See a sample step-by-step process.) »

If you prefer, you can also request conversion by phone or in writing.

 

[tulak]

I sold all my ETFs and went to mutual funds over a year ago. No bid/ask and no residual funds in a money market fund, since with funds you can buy partial shares.

The downside is days like today. I would have bought at better prices if I was using ETFs. Instead, I get what the market gives me at close. I'd mostly think this is a wash, but I also think there are periods of excessive drops - like today - that you can take advantage of if you're dealing with ETFs.

Of course that's assuming you can login to your online broker and submit an order...

 

[Cobra9777]

The bogleheads site has a comprehensive and objective comparison of ETFs vs mutual funds.

I prefer ETFs for lower ER and tax efficiency, but mainly because I want to house all my accounts at Fidelity, and while I don't trade very often, ETFs are significantly cheaper (7.95) than non-Fido MFs ($75). I also own several iShares ETFs which trade free at Fidelity.

 

[ronocnikral]

Technically, VG's funds and ETF's the same from a tax efficiency stand point

 

[O2Bfree]

modhatter, thanks for this post. I'm looking to get into a Vanguard fund, and was wondering about that, too.

 

[Mulligan]

I only have Total Stock Index and it is in a mutual fund, so I cant ever do an impulsive sell that is possible with an ETF. I swear I would have sold 4 different times the past 2 trading days. I then sober up after close. I contribute monthly to it so I should be glad stocks are on sale....Except I am not....


Sent from my iPad using Tapatalk

 

[modhatter]

Well that brings up an interesting point. I have been sitting here all day trying to figure out what I want in my new portfolio (which indexes at what %) which is something I should have gotten done over the weekend. So, if I stick with mutual funds (because I favor the flexibility of having dividends transferred to other accounts besides the Vanguard sweep account should I want to)

If the market spikes up tomorrow, I have missed the boat. Of course I realize if the market continues to drop tomorrow, I have lucked out in not getting my ducks in order in a more timely manner to buy today.

Which brings up the question: If we were to ever experience a really Big dip, and I wanted to buy into it that day, but only could through an ETF fund, and I decide to buy the ETF because of the unavailability of the mutual fund immediately, which I may have preferred, from the reading I have done on the Vanguard site. I can not later convert that ETF over to the mutual fund. (which I could do in reverse form)

It is my understanding I would have to first sell the ETF, and then place an order to buy the similar mutual fund. Is that correct? Is there a time restraint limit on doing this, where I would have to wait a certain period before selling it and buying it instead as a fund?

 

[jim584672]

I like ETFs, intraday pricing possible, no excessive trading restrictions, marginable, options usually available. Vanguard even reinvests the ETF dividends in a brokerage account if you want, by buying shares shares with the dividend and adding them to your account.

 

[ronocnikral]

Well that brings up an interesting point. I have been sitting here all day trying to figure out what I want in my new portfolio (which indexes at what %) which is something I should have gotten done over the weekend. So, if I stick with mutual funds (because I favor the flexibility of having dividends transferred to other accounts besides the Vanguard sweep account should I want to)

If the market spikes up tomorrow, I have missed the boat. Of course I realize if the market continues to drop tomorrow, I have lucked out in not getting my ducks in order in a more timely manner to buy today.

Which brings up the question: If we were to ever experience a really Big dip, and I wanted to buy into it that day, but only could through an ETF fund, and I decide to buy the ETF because of the unavailability of the mutual fund immediately, which I may have preferred, from the reading I have done on the Vanguard site. I can not later convert that ETF over to the mutual fund. (which I could do in reverse form)

It is my understanding I would have to first sell the ETF, and then place an order to buy the similar mutual fund. Is that correct? Is there a time restraint limit on doing this, where I would have to wait a certain period before selling it and buying it instead as a fund?

Correct, you cannot go etf -> mutual fund without creating a taxable event. Unless you are a big wig or under some sort of trading restrictions, which you would already know about, you can buy and sell to your heart's content.

One supposed advantage to etfs is the ability to set limit orders. While exciting and fun to talk about, I remain skeptical that missing out on today or tomorrow will really have a major impact on one's portfolio. Put your arms up and get ready to scream, this ride isn't over.

 

[tulak]

Well that brings up an interesting point. I have been sitting here all day trying to figure out what I want in my new portfolio (which indexes at what %) which is something I should have gotten done over the weekend. So, if I stick with mutual funds (because I favor the flexibility of having dividends transferred to other accounts besides the Vanguard sweep account should I want to)

If the market spikes up tomorrow, I have missed the boat. Of course I realize if the market continues to drop tomorrow, I have lucked out in not getting my ducks in order in a more timely manner to buy today.

Which brings up the question: If we were to ever experience a really Big dip, and I wanted to buy into it that day, but only could through an ETF fund, and I decide to buy the ETF because of the unavailability of the mutual fund immediately, which I may have preferred, from the reading I have done on the Vanguard site. I can not later convert that ETF over to the mutual fund. (which I could do in reverse form)

It is my understanding I would have to first sell the ETF, and then place an order to buy the similar mutual fund. Is that correct? Is there a time restraint limit on doing this, where I would have to wait a certain period before selling it and buying it instead as a fund?

I think it depends on the type of account your have at Vanguard. If you have one of their new brokerage accounts where you can have both Vanguard Funds and ETFs, then - according to their FAQ - you should be able to sell the ETF and the funds will be available immediately. This means you should then be able to buy the fund.

But if you have old style accounts where the funds are separate from the brokerage account, you'd have to wait until the ETF sale settles.

It's also important to note that Vanguard has restrictions on buying funds that were recently sold. So even if the above would work, I think you'd be out of luck if you happened to sell the same fund in the account before you try the ETF to fund conversion.

 

[LOL!]

I use both ETFs and mutual funds. They are both great and both have good things to recommend for them.

If one wants to use other brokers besides Vanguard, then most other brokers do not have Vanguard mutual funds for no commission, but some do have ETFs for no commission.

Also some Admiral share funds have a $50,000 minimum.

The linked comparison article is probably required reading for more information.

Sometimes I feel like an ETF and sometimes I don't.

 

[modhatter]

I use both ETFs and mutual funds. They are both great and both have good things to recommend for them.

If one wants to use other brokers besides Vanguard, then most other brokers do not have Vanguard mutual funds for no commission, but some do have ETFs for no commission.

Also some Admiral share funds have a $50,000 minimum.

The linked comparison article is probably required reading for more information.

Sometimes I feel like an ETF and sometimes I don't.

I'll bet you don't look like an ETF.

All kidding aside, I called Vanguard today and they said if you buy an ETF and want to then change to the similar fund family, you must sell it first, and there is a 3 day settlement period. However, that does not prevent you from purchasing as soon as sale shows settlement pending according to broker. You can buy on pending sale proceeds.

However, if you do repurchase right away (before 30 days) and there are any type of losses, they can not be used for tax purposes, at least in a wash sale.
Not sure about regular short term losses on tax return. Can anyone answer that one?

 

[Dan32]

I have ETFs, but was wondering if anyone watched the price of VV (Large Cap Index) on Monday. The price has dropped (like everything) from ~98 to ~86 at the close on Monday. Intraday thought a 52 week low of 58.5 was reached. I assume that someone sold and someone bought at those levels. A similar low price occurred on the SPY ETF. The individual stocks that those ETFs is based on did not drop a similar amount. Is this an indication that someone sold at market price and received an artificially low price because there were no sellers? An example of why one should use a limit order even on a large volume ETF?

 

[W2R]

One supposed advantage to etfs is the ability to set limit orders. While exciting and fun to talk about, I remain skeptical that missing out on today or tomorrow will really have a major impact on one's portfolio. Put your arms up and get ready to scream, this ride isn't over.

+1

I'm ready! And you're right, this past week will seem like child's play if it leads into another 2008-2009 style crash (or worse).

 

[LOL!]

However, if you do repurchase right away (before 30 days) and there are any type of losses, they can not be used for tax purposes, at least in a wash sale.
Not sure about regular short term losses on tax return. Can anyone answer that one?

If you are asking about wash sale rules, then of course they apply to ETFs, mutual funds, stocks, bonds, etc.

Wash sale rules seem to give people lots of anxiety because lots of info on the web is incomplete and/or people do not read carefully nor to the end of articles or even IRS publications and instructions.