No. of Recommendations: 1
I have a few of Vanguard's Indexers. Nowadays, they (and others) are available as Exchange Traded Funds. Is there any advantage to one or the other?

What I've found is that most ETFs have a lower annual fee than the corresponding mutual fund. So, if you're just holding on to a large position for a long time, the ETF is lower overall cost. If you're putting money in each paycheck, the transaction fee to buy into several different ETFs can be higher than what you save via the lower annual fees. But, with fees going down, that might not matter soon (or even now, depending on where you money is). If your money is at Fidelity, it's hard to beat their zero-fee funds (if those indexes are what you want to invest in).

So, I hold a few ETFs in my IRA and the brokerage window of my 401k, but my contribution each pay check goes to mutual funds. The periodic rebalancing often increases the amount I transfer to the brokerage window, so over time I've gotten more in ETFs and less in funds.
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The biggest difference with an Index ETF is that it can be bought and sold like an individual equity, whereas with a mutual fund, trades are executed at the next market close. Both tend to have low expenses, but the ETFs are often a little lower than the mutual fund. For some brokerages, mutual funds carry higher trade fees than equities and ETFs, but had a list of no-trade-fee funds for which that fee was waived. Many brokerages have now waived any trade fee for equities or ETFs, so depending on the fund, both may be free or one may be free while the other is not.

Fuskie
Who thinks ETFs are just simpler and easier to manage though he can't quantity why for you...

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The biggest difference with an Index ETF is that it can be bought and sold like an individual equity, whereas with a mutual fund, trades are executed at the next market close. Both tend to have low expenses, but the ETFs are often a little lower than the mutual fund. For some brokerages, mutual funds carry higher trade fees than equities and ETFs, but had a list of no-trade-fee funds for which that fee was waived. Many brokerages have now waived any trade fee for equities or ETFs, so depending on the fund, both may be free or one may be free while the other is not.

Fuskie
Who thinks ETFs are just simpler and easier to manage though he can't quantity why for you...

===================================
I think you're right, and you've stated some of the reasons.

Liquidity is part of it. You enter a buy or sell order, and you can see the price it executed for. You have to wait until 90-120 min. after the market close with a mutual fund.

You might want to check the historic schedule of dividend payments by the fund/ETF; i.e., do they pay quarterly, monthly, one big one in December, etc.? With one big one in December, you have to be careful about buying late in the year and having to pick up "your share" of 10-11 months earnings or gains. Not all funds or ETFs based on the S&P 500, or S&P Midcap 400 or Russell 2000 will necessarily work the same way.

Bill
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I would say the mutual fund over the companion ETF due the Vanguard's patented tax scheme. The mutual fund likely has more unrealized losses on it's books. That's a good thing. If the market drops by 50% in the next recession and a lot of the stupid money sells, you could conceivably get a capital gains distribution if they run out of unrealized losses in a mass sell-off by scared customers.

https://www.investopedia.com/how-vanguard-patented-a-system-...

intercst
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I have a few of Vanguard's Indexers. Nowadays, they (and others) are available as Exchange Traded Funds. Is there any advantage to one or the other?

We have learned by experience that ETFs are better in taxable accounts. Too many times we have been hit with huge capital gains distributions from our mutual funds, which we keep since selling them would trigger even bigger ones. FWIW these are managed funds. I tend to avoid index funds.

IP
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I have a few of Vanguard's Indexers. Nowadays, they (and others) are available as Exchange Traded Funds. Is there any advantage to one or the other?

CNC


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I too have a number of funds at Vanguard. Due to aggressive Roth conversions, I am about 75% Roth so tax consequence of cap gain distributions are not much of an issue for me. Yet I am still attracted to the ETF equivalents available for some of my funds. The reason being the ability to put a stop loss order underneath the ETF, something I cannot do with the MF. I haven't pulled the trigger for some reason but logic tells me I should.
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We have learned by experience that ETFs are better in taxable accounts. Too many times we have been hit with huge capital gains distributions from our mutual funds

That should not be the case with an index fund. They are not going to realized gains in the same manner that an active fund would.
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That should not be the case with an index fund. They are not going to realized gains in the same manner that an active fund would.

Unless for some reason the index contents change.

IP
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That should not be the case with an index fund.

I don't think that is correct. When mutual fund owners sell their shares, mutual fund companies must sell shares to come up with cash to fund those sales. When things are in balance, ie buyers equals sellers, there is no impact. But mood of the market can cause sellers to exceed buyers.

Index funds do not have the option to sell their losers first. They must sell them all.

Etf's differ in that the funds come from the matching buyer. They presumably will buy in shares when share price is below net asset value and visa versa, but unlike mutual funds, they are not required to do so.
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pauleckler writes,

Index funds do not have the option to sell their losers first. They must sell them all.

</snip>


That's not entirely true. Vanguard index funds operate with a patented tax avoidance scheme. They match an index mutual fund with a companion ETF. Then harvest the ETF's unneeded tax losses and assign them to the mutual fund. (Patent expires in 2023. Then everyone will be able to do it, and Congress may be motivated to outlaw it to avoid the loss of tax revenue. See link:)

https://www.investopedia.com/how-vanguard-patented-a-system-...

It's almost as good as "free Obamacare". <LOL>

intercst
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I have a few of Vanguard's Indexers. Nowadays, they (and others) are available as Exchange Traded Funds. Is there any advantage to one or the other?

What I've found is that most ETFs have a lower annual fee than the corresponding mutual fund. So, if you're just holding on to a large position for a long time, the ETF is lower overall cost. If you're putting money in each paycheck, the transaction fee to buy into several different ETFs can be higher than what you save via the lower annual fees. But, with fees going down, that might not matter soon (or even now, depending on where you money is). If your money is at Fidelity, it's hard to beat their zero-fee funds (if those indexes are what you want to invest in).

So, I hold a few ETFs in my IRA and the brokerage window of my 401k, but my contribution each pay check goes to mutual funds. The periodic rebalancing often increases the amount I transfer to the brokerage window, so over time I've gotten more in ETFs and less in funds.
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That’s interesting the Vanguard thing.

I have a 401k with Vanguard from a previous employer wondering if I should roll it over. They have an advisory service for 30 basis points but I’ve heard it’s pretty cookie-cutter in that everyone basically gets a targeted stock and bond index type of investment. Anyone tried it?
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They have an advisory service for 30 basis points but I’ve heard it’s pretty cookie-cutter in that everyone basically gets a targeted stock and bond index type of investment. Anyone tried it?

We asked them about it and that's basically what they told us too. We passed.

IP
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This is been a dilemma I have been dealing with for a while. I have been dollar cost averaging over five Vanguard index funds for over a decade in a after tax account and before ETFs for these indexes were even available. Now I have noticed the ETFs do have lower annual costs then the index funds but due to the cap gains I don't want to sell the index funds and transfer them to the ETFs nor do I want to stop investing in the index funds and open up new ETFs. Any suggestions? Should I wait it out in hopes that the annual fees will come inline with each other?
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No. of Recommendations: 2
This is been a dilemma I have been dealing with for a while. I have been dollar cost averaging over five Vanguard index funds for over a decade in an after-tax account and before ETFs for these indexes were even available. Now I have noticed the ETFs do have lower annual costs then the index funds but due to the cap gains I don't want to sell the index funds and transfer them to the ETFs nor do I want to stop investing in the index funds and open up new ETFs. Any suggestions? Should I wait it out in hopes that the annual fees will come inline with each other?
=====================================
I understand the part about avoiding capital gains, but why not just start new positions in the ETFs?
I'm curious too - how significant are the differences in the expense ratios? I would have though Vanguard index funds had pretty minimal expenses in either type of vehicle.

Bill
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They have an advisory service for 30 basis points but I’ve heard it’s pretty cookie-cutter in that everyone basically gets a targeted stock and bond index type of investment.

You can do your own 80/20 or 60/40 allocation for 0 basis points.

I think that the 30BP advisory service is for people who are afraid of doing it themselves and need some "professional" to do it for them. And don't mind paying for what they think is peace of mind.
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mrgoo,
you brought up a good question. Google says it's possible to do a no-tax conversion from index funds to ETFs (in fact I think Vanguard itself did so a while back). See this link then ask Vanguard. And let us know what they say.
https://www.doughroller.net/investing/mutual-funds-investing...
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That’s interesting the Vanguard thing.

I have a 401k with Vanguard from a previous employer wondering if I should roll it over. They have an advisory service for 30 basis points but I’ve heard it’s pretty cookie-cutter in that everyone basically gets a targeted stock and bond index type of investment. Anyone tried it? - StockGoddess


--------------------

My GF uses it. At my urging, she rolled over a large inheritance previously held by Wells Fargo (talk about high fees!!!!!) so hers is all in an after tax account.

Her account manager offers to conduct quarterly account reviews which she usually avoids since she really doesn't understand investing stuff. He handles the asset allocation which is heavier on the bond side than I would have but overall the adviser provides her with peace of mind and the fees are a significant savings over Wells Fargo.

One major benefit he provides is regularly transferring a fixed amount to her checking account which she acknowledges she needs to discipline her spending.
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Knighttof3 said:

"mrgoo,
you brought up a good question. Google says it's possible to do a no-tax conversion from index funds to ETFs (in fact I think Vanguard itself did so a while back). See this link then ask Vanguard. And let us know what they say.
https://www.doughroller.net/investing/mutual-funds-investing......


Ah yes the power of The Google. Thanks so much for the insight.

I called Vanguard this morning and was able to convert my stock index funds to ETFs. As stated in the article you can not convert bond index funds to ETFs. The only drawback I now have which is very minor is you can not set up auto-investing with ETF so once a month I will need to go into my account and buy the ETFs in my account. Piece of cake.

mrgoo
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inparadise,

You wrote, We have learned by experience that ETFs are better in taxable accounts. Too many times we have been hit with huge capital gains distributions from our mutual funds, which we keep since selling them would trigger even bigger ones. FWIW these are managed funds. I tend to avoid index funds.

Most mutual funds have to periodically pass on capital gains from any daily net redemptions. If fund redemptions exceed fund sales in any given day, the fund is forced to sell assets to raise cash. This is daily net redemptions. For index funds, capital gains come from the sum of these redemptions plus any changes in the underlying index.

Vanguard avoids the daily net redemption problem by making their ETF shares a class of their regular mutual fund shares and using those shares to do arbitrage. Vanguard has a patent on this technique, so for now other mutual fund companies can't use it without paying a licensing fee to Vanguard.

- Joel
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