ETFs or Mutual Funds: A Review and Analysis
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ETFs or Mutual Funds: A Review and Analysis
I've read a little in passing about the relatively new product know as an ETF. My understanding is that these "Exchange Traded Funds" enable one to buy and sell "mutual fund like investments" as easily and inexpensively as individual stocks and bonds.
What surprises me is that now Vanguard makes these available with an expense ratio lower than the traditional Mutual Fund. As a result some people who are buy and hold investors, even though they have no intention of engaging in active trading, nonetheless are buying these in place of their mutual funds.
Three questions:
1) How is it possible for anybody to provide such a product for a lower expense ratio than a mutual fund? ...after all they may get traded a lot generating more cost.
2) What are they exactly? Are they ownership claims to bonds and stocks just like mutual funds, or are they something different?
3) What are the drawbacks of ETFs in comparison to Mutual funds?
..............
Finally, are their any articles you are aware of that have addressed this issue well in the past? Could you post some of them here? Thanks.
What surprises me is that now Vanguard makes these available with an expense ratio lower than the traditional Mutual Fund. As a result some people who are buy and hold investors, even though they have no intention of engaging in active trading, nonetheless are buying these in place of their mutual funds.
Three questions:
1) How is it possible for anybody to provide such a product for a lower expense ratio than a mutual fund? ...after all they may get traded a lot generating more cost.
2) What are they exactly? Are they ownership claims to bonds and stocks just like mutual funds, or are they something different?
3) What are the drawbacks of ETFs in comparison to Mutual funds?
..............
Finally, are their any articles you are aware of that have addressed this issue well in the past? Could you post some of them here? Thanks.
Re: ETFs or Mutual Funds: A Review and Analysis
There is good information provided in Bogleheads Wiki.hazlitt777 wrote:Three questions:
1) How is it possible for anybody to provide such a product for a lower expense ratio than a mutual fund? ...after all they may get traded a lot generating more cost.
2) What are they exactly? Are they ownership claims to bonds and stocks just like mutual funds, or are they something different?
3) What are the drawbacks of ETFs in comparison to Mutual funds?
http://www.bogleheads.org/wiki/Exchange_Traded_Funds
By the way, with regards to Vanguard ETFs, they are nothing more than another share class of the same mutual fund.
- For instance, S&P 500 Fund has three share classes (VFINX, VFIAX, VOO) available to you and me, the retail investor.
- The last 2 share classes (VFIAX, VOO) cost exactly the same 0.05% ER.
- To own VOO you need a separate brokerage account.
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: ETFs or Mutual Funds: A Review and Analysis
Also search the forum for posts by nisiprius on ETFs. He has articulated some nice nuances needed to know now on these 'new' products.
Re: ETFs or Mutual Funds: A Review and Analysis
One thing nice about ETFs is that they are easy to follow during the day on any quote reader. So for example, an owner of VINIX could enter VOO in the portfolio tracker on their smartphone and enjoy the action anytime the markets are percolating. If you enter VINIX of course, you'll have to wait until after the market closes, and then boo hoo, no percolation! -- Tet
Re: ETFs or Mutual Funds: A Review and Analysis
Answer 1: ETFs can be cheaper because the sponsor of the ETF does not deal with retail investors, does not need to track their buys and sells, does not need to issue 1099DIV nor 1099B forms, and all kinds of bookkeeping hassles. All these are things a mutual fund company has to provide for their retail investors. For ETFs, the broker of the retail investor must do all these things just like they do for stocks.
Re: ETFs or Mutual Funds: A Review and Analysis
Also this:
http://www.amazon.com/The-ETF-Book-Abou ... 063&sr=8-3
If you access Amazon via the link at the top of the Forum pages this forum will earn back some support.
http://www.amazon.com/The-ETF-Book-Abou ... 063&sr=8-3
If you access Amazon via the link at the top of the Forum pages this forum will earn back some support.
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Re: ETFs or Mutual Funds: A Review and Analysis
Thanks for the responses and information. Today is a busy day but I hope to study this more closely later this coming week.
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Re: ETFs or Mutual Funds: A Review and Analysis
Well, to begin with, Vanguard ETFs are not cheaper than mutual fund Admiral shares. How much that tells you about actual costs and how much that tells you about Vanguard's business strategy I wouldn't know.
But I think the big factor is the redemption process. A retail investor needs retail services that need to be paid for somewhere, sometime whether the product is a mutual fund or an ETF.
I sorta-kinda think it might be like this. The mutual fund gives you the actual end-of-day NAV and somehow does this out of a cash pool, created in part by purchases during the day but with the need for some reserve for days when redemptions exceed purchases (cash flow out).
The ETF doesn't take any responsibility for anything. The marketplace itself takes care of the "redemption" process by not really redeeming anything. When you sell an ETF, someone else buys it from you at a market price. You trust the market to provide you with something reasonably close to the NAV, and it usually does so. Shares of the ETF are meanwhile just trading back and forth as virtual pieces of paper; shares of the ETF are bought and sold, but shares of the underlying stocks are not. Only every so often are large "creation units" created as needed.
Instead of the fund managing the redemption process, the market participants manage this among themselves. And instead of the fund company getting paid for the service, the market participants are implicitly paid via the bid/asked spread.
This article says
But I think the big factor is the redemption process. A retail investor needs retail services that need to be paid for somewhere, sometime whether the product is a mutual fund or an ETF.
I sorta-kinda think it might be like this. The mutual fund gives you the actual end-of-day NAV and somehow does this out of a cash pool, created in part by purchases during the day but with the need for some reserve for days when redemptions exceed purchases (cash flow out).
The ETF doesn't take any responsibility for anything. The marketplace itself takes care of the "redemption" process by not really redeeming anything. When you sell an ETF, someone else buys it from you at a market price. You trust the market to provide you with something reasonably close to the NAV, and it usually does so. Shares of the ETF are meanwhile just trading back and forth as virtual pieces of paper; shares of the ETF are bought and sold, but shares of the underlying stocks are not. Only every so often are large "creation units" created as needed.
Instead of the fund managing the redemption process, the market participants manage this among themselves. And instead of the fund company getting paid for the service, the market participants are implicitly paid via the bid/asked spread.
This article says
In other words, it's a tradeoff. An ETF has lower costs because the investor is willing to accept market valuations of ETF shares in place of insisting on the exact NAV. I wonder, too, whether ETFs tend to be traded in large amounts (i.e. are used more by institutional investors and such) and whether the retail investor buying a few shares rides along and benefits from the economies of scale?When ETF shares are bought and sold on the open market, the underlying securities that were borrowed to form the creation units remain in the trust account. The trust generally has little activity beyond paying dividends from the stock held in the trust to the ETF owners and providing administrative oversight because the creation units are not impacted by the transactions that take place on the market when ETF shares are bought and sold.
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Re: ETFs or Mutual Funds: A Review and Analysis
Because, with ETF's you pay the transaction costs when you make the trade through your broker. With no-load mutual funds, the transaction costs are part of the ER.hazlitt777 wrote:1) How is it possible for anybody to provide such a product for a lower expense ratio than a mutual fund? ...after all they may get traded a lot generating more cost.
I believe that Vanguard's ETF ER's are equal to their mutual funds' Admiral Class shares.
Re: ETFs or Mutual Funds: A Review and Analysis
This varies by ETF, primarily with the volume. I have bought and sold VSS (FTSE small-cap) several times, and I rarely see trades of more than a thousand shares; checking the chart on Morningstar, there seem to be about two trades a day of that size. The institutions who are trading it are more likely to be the market makers, who will probably buy or sell as many shares as you want, but only after taking 20 cents on the spread.nisiprius wrote:I wonder, too, whether ETFs tend to be traded in large amounts (i.e. are used more by institutional investors and such) and whether the retail investor buying a few shares rides along and benefits from the economies of scale?
Larger ETFs are more likely to be used for hedging and institutional purchases, with huge markets; this allows something like VWO (Emerging Markets Index) to trade at a one-cent spread even though the stocks it holds are hard to price to within one cent. Thus buy-and hold ETF investors can benefit from the tiny spread; it was a better deal than the mutual fund until Vanguard finally eliminated the purchase fees.
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Re: ETFs or Mutual Funds: A Review and Analysis
First, read livesoft's admirable concise "cheat-sheet" summary, which is in the wiki here.3) What are the drawbacks of ETFs in comparison to Mutual funds?
Finally, are their any articles you are aware of that have addressed this issue well in the past? Could you post some of them here? Thanks.
Second, read Vanguard's nice and short piece, The basics of ETFs: A primer for the perplexed
If you are serious about ETFs (I am not, myself), Rick Ferri's The ETF Book is really good and I strongly recommend it. The opening chapters describe just what they are and how they work, creation units and all that.
The first one, the original SPDR, was launched in 1993. Quite a few were created in the mid-nineties, and I personally took a flutter in QQQ, the NASDAQ-100 ETF in late 1999. My investment diary says "Rationale: Gambling money. Let’s have at least a small bet on the table for the great technology bonanza. Future intentions: follow impulses."hazlitt777 wrote:I've read a little in passing about the relatively new product know as an ETF.
They are mutual funds. Exchange Traded [mutual] Funds.Are they ownership claims to bonds and stocks just like mutual funds, or are they something different?
Last edited by nisiprius on Sat May 19, 2012 7:06 pm, edited 1 time in total.
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Re: ETFs or Mutual Funds: A Review and Analysis
You accidentally used the same URL in this link as the previous one. Here's the page I think you meant:nisiprius wrote:Second, read Vanguard's nice and short piece, The basics of ETFs: A primer for the perplexed.
The basics of ETFs: A primer for the perplexed
Re: ETFs or Mutual Funds: A Review and Analysis
There are some Vanguard ETFs that can be bought and sold without the early redemption penalties associated with the corresponding MF. I believe there are some Vanguard MFs that have a redemption fee with a multi year waitng time. This may have changed in the last 6 months. See apology below.
I use ETFs in non VG 401k account as the VG MF has a greater cost to purchase vs. an ETF,stock or bond. I do dislke the spread. I did not open up the solo 401k at Vanguard as additional fees for an outside company was required years ago for some odd reason that I don't recall and am too lazy and busy to look up (apologies to sscritic... one of the good guys ).
I use ETFs in non VG 401k account as the VG MF has a greater cost to purchase vs. an ETF,stock or bond. I do dislke the spread. I did not open up the solo 401k at Vanguard as additional fees for an outside company was required years ago for some odd reason that I don't recall and am too lazy and busy to look up (apologies to sscritic... one of the good guys ).
"Let us endeavor, so to live, that when we die, even the undertaker will be sorry." Mark Twain
Re: ETFs or Mutual Funds: A Review and Analysis
Vanguard eliminated the redemption fees on the tax-managed funds (except for the two-month fee on all international funds); previously, there was a 5-year redemption fee for Tax-Managed International which could be avoided by using the ETF class VEA.SGM wrote:There are some Vanguard ETFs that can be bought and sold without the early redemption penalties associated with the corresponding MF. I believe there are some Vanguard MFs that have a redemption fee with a multi year waitng time. This may have changed in the last 6 months. See apology below.
There are still a few Vanguard funds with permanent purchase and redemption fees which can be avoided by using the ETF class. (However, you don't completely avoid a cost when buying and selling; the ETFs VSS and VNQI which are the ETF classes of FTSE small-cap and Global Real Estate have larger spreads than most ETFs.)
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Re: ETFs or Mutual Funds: A Review and Analysis
Then this would seem to confirm my suspicion that the costs of using a ETF would probably be greater if you use them to trade. Otherwise, perhaps they would be about the same as mutual funds in regard to total costs?Malachi wrote:Because, with ETF's you pay the transaction costs when you make the trade through your broker. With no-load mutual funds, the transaction costs are part of the ER.hazlitt777 wrote:1) How is it possible for anybody to provide such a product for a lower expense ratio than a mutual fund? ...after all they may get traded a lot generating more cost.
I believe that Vanguard's ETF ER's are equal to their mutual funds' Admiral Class shares.
Re: ETFs or Mutual Funds: A Review and Analysis
ETFs lost their main advantage - cost - a year or two ago when Vanguard lowered their Admiral share minimums. They may still useful if you tax loss harvest. Traditional funds are more convenient to trade, at least for me. "True" ETFs like SPY will probably be more tax efficient over the long term than share class ETFs like Vanguard's. Overall I don't think it matters much which you choose.
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Re: ETFs or Mutual Funds: A Review and Analysis
I enjoyed reading through the various articles and links. Thanks everyone, and thank you especially to nisiprius for this link: http://www.investopedia.com/articles/mu ... z1vK33PKZ7 to the article entitled, "An inside Look at ETF Construction." That was exactly what I was looking for.
Now I just have to reread it and think it out and give it time.
For what it is worth, I really have no desire to move into ETFs. I just don't see at this time the very minimum at best savings as justifying what appears to me after my cursory reading of these articles, adding a lot of complexity for not much potential savings. Maybe in time I will change my mind but I don't see it happening at this time.
Again thanks.
Now I just have to reread it and think it out and give it time.
For what it is worth, I really have no desire to move into ETFs. I just don't see at this time the very minimum at best savings as justifying what appears to me after my cursory reading of these articles, adding a lot of complexity for not much potential savings. Maybe in time I will change my mind but I don't see it happening at this time.
Again thanks.
Re: ETFs or Mutual Funds: A Review and Analysis
I have to say that ETFs do not add complexity. What is so hard about submitting an order to buy $500 of a mutual fund or 10 shares of an ETF? It takes the same amount of thought and action. OK, with the ETF you need to figure out an integral number of shares to buy based on the amount of money you want to invest. Furthermore, there are several brokers who charge no-commissions-on-ETFs, so that's not an issue anymore either.
I think the main thing about ETFs is that folks are unfamiliar with them. But we do see similarities among the folks who are unfamiliar with ETFs and folks who are unfamiliar with mutual funds. For example, for folks unfamiliar with mutual funds, a big sticking point is figuring out the price you pay per share and what price do you get when you place your order because you cannot look up the price when you place your order. Folks familiar with mutual funds are amused by these questions because they know the answers.
I think the main thing about ETFs is that folks are unfamiliar with them. But we do see similarities among the folks who are unfamiliar with ETFs and folks who are unfamiliar with mutual funds. For example, for folks unfamiliar with mutual funds, a big sticking point is figuring out the price you pay per share and what price do you get when you place your order because you cannot look up the price when you place your order. Folks familiar with mutual funds are amused by these questions because they know the answers.
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Re: ETFs or Mutual Funds: A Review and Analysis
Thanks. Fixed.Malachi wrote:You accidentally used the same URL in this link as the previous one. Here's the page I think you meant:nisiprius wrote:Second, read Vanguard's nice and short piece, The basics of ETFs: A primer for the perplexed.
The basics of ETFs: A primer for the perplexed
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Re: ETFs or Mutual Funds: A Review and Analysis
A mild demurrer.livesoft wrote:I have to say that ETFs do not add complexity. What is so hard about submitting an order to buy $500 of a mutual fund or 10 shares of an ETF? It takes the same amount of thought and action.
With an ETF you need to submit that order during the business day. You need to decide when to place it. You need to decide whether to place a market order, a limit order, a stop order, a trailing stop order, or a conditional order. If it's a limit order, you need to decide what limit to set, and check to see if it was filled, and deal with the possibility that it wasn't. It's not as hard as learning to drive stick shift, but there is a minor skill to master.
Opinions may differ, but I submit that number-of-dollar uncertainty is more complex than number-of-share uncertainty. If I have just contributed $5,000 to my Roth, even though it doesn't really matter it feels less complex to buy $3,000.00 of VTSMX and $2,000.00 worth of VBMFX than to choose numbers of ETF shares that will approach but not exceed those numbers. Similarly, if I need to raise $10,000 it feels less complex sell shares of BND and maybe end up with $9978.26 or $10,052.89 than to write a check for $10,000 from the checkbook that draws from the VBLTX account.
And of course, funds-of-funds like the LifeStrategy and Target Retirement funds are less complex than buying and managing several ETFs.
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Re: ETFs or Mutual Funds: A Review and Analysis
There are issues involved with some ETFs because the trading costs (in dollars and time) are non-trivial, particularly with larger orders in low-volume ETFs. You can buy $500 or $50,000 of any mutual fund at net asset value with the same effort.livesoft wrote:I have to say that ETFs do not add complexity. What is so hard about submitting an order to buy $500 of a mutual fund or 10 shares of an ETF? It takes the same amount of thought and action. OK, with the ETF you need to figure out an integral number of shares to buy based on the amount of money you want to invest. Furthermore, there are several brokers who charge no-commissions-on-ETFs, so that's not an issue anymore either.
I had losses to harvest on Thursday in both VEA (Tax-Managed International) and VSS (FTSE small-cap). For VEA, harvesting the loss was easy; I placed a market order to sell my shares into a one-cent spread, with almost no transaction cost. For VSS, it took 45 minutes to get a reasonable trade, as the market opened with a spread of $1 and it didn't get below 35 cents until another small trader went into the middle of the 35-cent spread I had created; after his order was taken, I was in the middle of a 21-cent spread. Even then, I believe I lost about $60 on the spread; a market order at the open (or a limit order at the bid) would have cost about $200, and $140 saved was worth the 45-minute wait.
Re: ETFs or Mutual Funds: A Review and Analysis
Good demurrer. In reality, one does not need to make those decisions. One can submit a market order at any time just like with a mutual fund. One can happily go through life without even submitting a stop order, a conditional order, or un upside-downwards in-out order.nisiprius wrote:A mild demurrer.livesoft wrote:I have to say that ETFs do not add complexity. What is so hard about submitting an order to buy $500 of a mutual fund or 10 shares of an ETF? It takes the same amount of thought and action.
With an ETF you need to submit that order during the business day. You need to decide when to place it. You need to decide whether to place a market order, a limit order, a stop order, a trailing stop order, or a conditional order. If it's a limit order, you need to decide what limit to set, and check to see if it was filled, and deal with the possibility that it wasn't. It's not as hard as learning to drive stick shift, but there is a minor skill to master.
But for best results, I think one should become familiar with a limit order and use one when a market order does not make sense. Of course, what does "when a market order does not make sense" mean? And I also believe one should submit ETF orders when the market is open, but online brokers will accept your order even if the market is closed.
Furthermore, it appears that lots of folks around here do buy individual stocks every now and then. The same issues apply to stocks.
Re: ETFs or Mutual Funds: A Review and Analysis
But you didn't sit there glued to your computer during this 45-minute wait, did you?grabiner wrote:.... For VSS, it took 45 minutes to get a reasonable trade, as the market opened with a spread of $1 and it didn't get below 35 cents until another small trader went into the middle of the 35-cent spread I had created; after his order was taken, I was in the middle of a 21-cent spread. Even then, I believe I lost about $60 on the spread; a market order at the open (or a limit order at the bid) would have cost about $200, and $140 saved was worth the 45-minute wait.
Suppose I submit an order to buy shares in a mutual fund right now. I do not sit glued to my computer for the next 36+ hours to find out how many shares I bought.
But before nisiprius jumps in here, I do realize that I will buy shares no matter what when I submit my order and it is true that you did not know if your order would be completed at the time you submitted it.
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Re: ETFs or Mutual Funds: A Review and Analysis
When you do something like, say, put a pot of rice on the stove on "low" and set the timer for twenty minutes to remind you to check, you are not watching the pot for twenty minutes, but there is definitely some degree of mental distraction, a light but nagging mental burden. And during that twenty minutes, you may be able to accomplish many small tasks, but there are many others that you don't dare begin because you know that in twenty minutes you will need to check the pot--and may or may not need to check it again a few minutes later, etc.livesoft wrote:But you didn't sit there glued to your computer during this 45-minute wait, did you?
I've bought ETFs maybe six times in my life, always market orders because I didn't know any better. Pre-internet days, broker says "would you like to buy that on the market?" and I might have even said "yeah" and not asked what that meant. Might have thought to myself "where else could you buy it?"
But last time was just a few months after the flash crash, and I believe one of Vanguard's most gigantic and most-heavily-traded ETFs had been one of the ones that had been dramatically affected momentarily.So I used a limit order for the first time in my life. For iShares TIP.
Two things happened. First, I encountered a whole bunch of strange and weird things I couldn't make sense of--because I'd never needed to know exactly when the market opened before, and it happened to be 9:15 a.m. The stock market opens at 9:30. Who knew? (Why isn't it 9:00?)
When I got that resolved, I encountered a strange sequence of events. 1) Fidelity's website would not allow me to enter a limit order for a higher limit than the currently displayed...uh... "ask," I think. 2) But whenever I entered a limit order for the exact amount of the currently displayed "ask," my order would not get filled. The price happened to be rising that day, and I entered orders about three times, three repeated cycles of place order, was it filled? doesn't say. Was it filled? doesn't say. Go make a pot of rice. Come back. Was it filled? Nope. At successively higher prices. Eventually I gave up, just placed a market order and to heck with it, and it got filled at close to the currently displayed "price," which was a good 1% higher than the first price I'd seen.
Not enough to sour me on ETFs for life, but enough to make me grumble. My "free ETF purchase" had just cost me $100.
I believe it would take between 6 and 24 ETF purchases to get so comfortable with the purchase process that you wouldn't be aware of the complexity. Just guessing, because I'm not there yet.
I believe that once you get past the (significant) complexity hurdles of establishing an account, a mutual fund purchase works exactly the way a novice expects it to, first time and every time. (Biggest "complexity" surprise: the first time you accidentally hit the frequent trading restriction).
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Re: ETFs or Mutual Funds: A Review and Analysis
I just use market order rather than the other types of orders because up till now, I have been buying very few shares every time. My thought is that with market gyrations day by day, tomorrow's share prices may be lower than today's limit order I could place. Am I wrong in my thinking?
Having said that, I have just implemented a direct rollover from my previous employer's 401k to Vanguard and intend to buy ETFs rather than mutual funds because I don't have enough to buy Admiral shares for all the different funds I want to purchase. Should I be purchasing limit orders in this case then?
Having said that, I have just implemented a direct rollover from my previous employer's 401k to Vanguard and intend to buy ETFs rather than mutual funds because I don't have enough to buy Admiral shares for all the different funds I want to purchase. Should I be purchasing limit orders in this case then?
Re: ETFs or Mutual Funds: A Review and Analysis
^ I think you should use this opportunity to use limit orders for some of your trades. Then you will experience how a limit order works. You probably do not need to use limit orders for all your orders though.
Here's a thread on limit orders: http://www.bogleheads.org/forum/viewtopic.php?t=54994
And you can have multiple orders submitted nearly simultaneously that are all active at the same time. For example, if you want to buy 5000 shares of VSS, you could submit 5 different 1000 share orders at the same or different limit prices.
Here's a thread on limit orders: http://www.bogleheads.org/forum/viewtopic.php?t=54994
And you can have multiple orders submitted nearly simultaneously that are all active at the same time. For example, if you want to buy 5000 shares of VSS, you could submit 5 different 1000 share orders at the same or different limit prices.
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Re: ETFs or Mutual Funds: A Review and Analysis
Admiral class index funds are not available outside of Vanguard and some qualified plans, although Wells Fargo has been providing some Signal class funds. Some would prefer not to use Vanguard to hold funds.yobria wrote:ETFs lost their main advantage - cost - a year or two ago when Vanguard lowered their Admiral share minimums.
Brian
Re: ETFs or Mutual Funds: A Review and Analysis
Actually, I did have to watch the order, because I needed to change it several times. I started with an order 10 cents below the ask of the $1 spread. As the spread narrowed, and also as the market dropped, I had to reduce my price to have a chance that the order would execute; leaving an old limit order around that was nowhere near the market price would have meant that I would have to come back the next day and try harvesting again.livesoft wrote:But you didn't sit there glued to your computer during this 45-minute wait, did you?grabiner wrote:.... For VSS, it took 45 minutes to get a reasonable trade, as the market opened with a spread of $1 and it didn't get below 35 cents until another small trader went into the middle of the 35-cent spread I had created; after his order was taken, I was in the middle of a 21-cent spread. Even then, I believe I lost about $60 on the spread; a market order at the open (or a limit order at the bid) would have cost about $200, and $140 saved was worth the 45-minute wait.
And, more important, I can't trade stocks from work, so I had to stay at home to wait for the trade. (That is why I was trading near the market open; I might have been able to get a small spread faster at noon, but in order to get the spread at noon, I would have had to go home in the middle of the day and then come back.)
Re: ETFs or Mutual Funds: A Review and Analysis
Clearly, you need to buy a smart phone that lets you trade almost anywhere and almost anytime you want.
Re: ETFs or Mutual Funds: A Review and Analysis
Interesting discussion.
I have been using ETF's for a little while now and I am in the process of reverting to Vanguard Mutual Funds. I am one of those unfortunate few who get mesmerized during the process of making a daytime trade. For example, if the trend is downward, why not wait it out so you can get a better price? So I stare at the darn graph in a trance and wait it out for the 'opportune' moment. Then I wonder where the day went. (It kind of reminds me of the attraction of a good online video game - it absorbs your attention.)
I might add that I am not buying and selling like a day trader. Rather, I am just buying for the long term with the occasional tax loss harvest.
I also admit (in a prior thread) to buying ETF's in small lots because I was too chicken to drop a big chunk all at once. Another point in favor of mutual funds - in my case. I won't be subject to the bid/ask each time. I don't think I lose much but I also don't like that it's not altogether transparent.
I'm also considering the autopilot investing option - again point in favor of mutual funds.
Additionally, when selling, I have to add up all my shares and so on and so forth.. it's not hard, but I prefer to exchange dollars in nice round numbers.. exchange $10K of this for $10K of that... nice.
I just think it comes down to time I'd rather spend on other things.
Don't get me wrong, I think ETF's have their place and may use them sparingly in the future. I just think my psychological makeup lends itself more to mutual funds. I'm guessing there are others out there like me so I figured I'd share my experience.
Ultimately, I seek what Taylor refers to as 'The Majesty of Simplicity' - my feeling at the moment is that, for me, Mutual Funds get me closer to that goal.
I have been using ETF's for a little while now and I am in the process of reverting to Vanguard Mutual Funds. I am one of those unfortunate few who get mesmerized during the process of making a daytime trade. For example, if the trend is downward, why not wait it out so you can get a better price? So I stare at the darn graph in a trance and wait it out for the 'opportune' moment. Then I wonder where the day went. (It kind of reminds me of the attraction of a good online video game - it absorbs your attention.)
I might add that I am not buying and selling like a day trader. Rather, I am just buying for the long term with the occasional tax loss harvest.
I also admit (in a prior thread) to buying ETF's in small lots because I was too chicken to drop a big chunk all at once. Another point in favor of mutual funds - in my case. I won't be subject to the bid/ask each time. I don't think I lose much but I also don't like that it's not altogether transparent.
I'm also considering the autopilot investing option - again point in favor of mutual funds.
Additionally, when selling, I have to add up all my shares and so on and so forth.. it's not hard, but I prefer to exchange dollars in nice round numbers.. exchange $10K of this for $10K of that... nice.
I just think it comes down to time I'd rather spend on other things.
Don't get me wrong, I think ETF's have their place and may use them sparingly in the future. I just think my psychological makeup lends itself more to mutual funds. I'm guessing there are others out there like me so I figured I'd share my experience.
Ultimately, I seek what Taylor refers to as 'The Majesty of Simplicity' - my feeling at the moment is that, for me, Mutual Funds get me closer to that goal.
Re: ETFs or Mutual Funds: A Review and Analysis
Thanks for sharing. It's comments like yours that are important for many folks. You tried ETFs; you found they were not suitable for your style.
Re: ETFs or Mutual Funds: A Review and Analysis
It is funny that you mention this because I actually tried to do this "conversion" Friday at 3:50...unsuccessfully. I finally have enough in Total Stock Market (VTI) to qualify for admiral shares, so I sold all my shares thinking that the proceeds would be immediately available in my Vanguard account. Well they weren't and I didn't want to leave this money out of the market over the weekend so I panicked and bought back the shares of VTI at about 3:57. Guess I'll give them a call on Monday to see what I can do.max12377 wrote: I have been using ETF's for a little while now and I am in the process of reverting to Vanguard Mutual Funds. I am one of those unfortunate few who get mesmerized during the process of making a daytime trade. For example, if the trend is downward, why not wait it out so you can get a better price? So I stare at the darn graph in a trance and wait it out for the 'opportune' moment. Then I wonder where the day went. (It kind of reminds me of the attraction of a good online video game - it absorbs your attention.)
Doing it for about the same reasons you are. I'm trying to eliminate as many decisions as I can, which includes deciding when to pull the trigger on an ETF trade during the day.
- archbish99
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Re: ETFs or Mutual Funds: A Review and Analysis
Unfortunately, share class conversion is one-way -- you can't convert ETFs to mutual fund shares. (It's probably legal, but Vanguard doesn't allow it.) Stock and ETF trades settle on the third day, meaning you can see the funds in money market and exchange on day 4. (There is a trick to exchange on day 3: settling funds sweep before exchanges are executed, so if you have a small cash balance and exchange 98% of your money market shares, that will include the cash that just came in, even though you can't see the shares yet.)
To get from VTI to VTSAX, you can:
To get from VTI to VTSAX, you can:
- Sell all your VTI, wait for the money to settle, then exchange into VTSAX
- Sell as much VTI as you have cash in the account, then simultaneously buy VTSMX with the cash. Repeat each time your cash settles. (If you don't have a large cash position, sell part of your VTI and use that.). When you're done, call Vanguard and request a conversion from VTSMX to VTSAX.
I'm not a financial advisor, I just play one on the Internet.
Re: ETFs or Mutual Funds: A Review and Analysis
One thing nice about ETFs is that they are easy to follow during the day on any quote reader. So for example, an owner of VINIX could enter VOO in the portfolio tracker on their smartphone and enjoy the action anytime the markets are percolating. If you enter VINIX of course, you'll have to wait until after the market closes, and then boo hoo, no percolation! -- Tet
In general, people have a tendency to want to tinker. The daily movement - up/down/sideways - in ETFs makes it easier (tempting? addictive?) to tinker.livesoft wrote:Thanks for sharing. It's comments like yours that are important for many folks. You tried ETFs; you found they were not suitable for your style.max12377 wrote:Interesting discussion.
I have been using ETF's for a little while now and I am in the process of reverting to Vanguard Mutual Funds. I am one of those unfortunate few who get mesmerized during the process of making a daytime trade. For example, if the trend is downward, why not wait it out so you can get a better price? So I stare at the darn graph in a trance and wait it out for the 'opportune' moment. Then I wonder where the day went. (It kind of reminds me of the attraction of a good online video game - it absorbs your attention.)......
I believe that a long-term investor should care less what VOO does over the course of a day - even to TLH - especially when everyone usually knows when $#!% hits the fan Market (via online news, co-workers, random people buying coffee at Starbucks or sitting at the next table at lunch) and time to see if TLH may be necessary.
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: ETFs or Mutual Funds: A Review and Analysis
I think the benefits max12377 listed for mutual funds--buying specific dollar amounts instead of shares, putting things on autopilot, getting the day's closing price--are all valid and great, but they also all work against the aggressive TLHer. Therefore, I would posit that the more one benefits from aggressive TLHing (e.g., someone with high marginal tax rate and larger portfolio), the more one should lean toward ETFs rather than mutual funds.
Re: ETFs or Mutual Funds: A Review and Analysis
Livesoft - Happy to give back a little to the forum and share my experiences. It's the least I can do as I have learned so much from you folks. Back before Vanguard offered free trades on their ETF's I took your advice and opened up a Wells Fargo account. It's clear to me that there are lots of folks like me who lurk in the background mining for little gems of actionable information off this site.
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I thought of another little nuisance with ETF's - for myself -.. waiting for settlement. Correct me if I am wrong, but I think funds settle faster with mutual funds. I admit not a huge deal, but it feels like that 'net credit' sits in my brokerage account forever.. (Not sure if perhaps other non-Vanguard brokerages settle faster)
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As for tax loss harvesting, I think I can choose average cost basis or specid in my mutual fund account. So I can still choose which lots to harvest if I want to go down that path. The only thing I think I give up is intraday trading, no? I admit there may be more to it than that - I don't know.
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After I'm at it for a while, I'll add my contrasting experiences in Mutual Funds. Who knows.. maybe the grass won't be so green on the other side
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I thought of another little nuisance with ETF's - for myself -.. waiting for settlement. Correct me if I am wrong, but I think funds settle faster with mutual funds. I admit not a huge deal, but it feels like that 'net credit' sits in my brokerage account forever.. (Not sure if perhaps other non-Vanguard brokerages settle faster)
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As for tax loss harvesting, I think I can choose average cost basis or specid in my mutual fund account. So I can still choose which lots to harvest if I want to go down that path. The only thing I think I give up is intraday trading, no? I admit there may be more to it than that - I don't know.
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After I'm at it for a while, I'll add my contrasting experiences in Mutual Funds. Who knows.. maybe the grass won't be so green on the other side