ETFs or Mutual Funds?

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ETFs or Mutual Funds?

Postby Taylor Larimore » Mon Dec 03, 2012 4:59 pm

Bogleheads:

One of the decisions most investors face is whether to use ETFs or Traditional Mutual Funds?

Morningstar's Christine Benz interviews Vanguard's Joel Dickerson in this very informative interview on the subject:

Traditional Index Funds vs. ETFs: Which to Choose?

Best wishes
Taylor
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Re: ETFs or Mutual Funds?

Postby Majormajor78 » Mon Dec 03, 2012 8:53 pm

Good interview. I hadn't considered the possible increase in tax effeciancy (extremely slight) that ETF's can generate by picking and choosing the basis of the stocks they swap out for redemptions of the aggregation units.

While he did mention that ETF's offer a greater flexability for trading he appeared to be referring to being able to buy or sell shares at anytime during the day. He did not mention that ETF's have no short-term trading fees or trading lockouts that many mutual funds have.
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Re: ETFs or Mutual Funds?

Postby Doc » Tue Dec 04, 2012 10:38 am

Another current interview from M* on ETF trading whcih may be relevant:

Best Practices for ETF Trading
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Re: ETFs or Mutual Funds?

Postby grabiner » Tue Dec 04, 2012 8:18 pm

Doc wrote:Another current interview from M* on ETF trading whcih may be relevant:

Best Practices for ETF Trading


The link doesn't work on a direct click, but you can search for the title and get to the video.
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Re: ETFs or Mutual Funds?

Postby nisiprius » Tue Dec 04, 2012 8:25 pm

grabiner wrote:
Doc wrote:Another current interview from M* on ETF trading whcih may be relevant:

Best Practices for ETF Trading


The link doesn't work on a direct click, but you can search for the title and get to the video.
It worked for me. Maybe you need to have signed up for the no-cost basic Morningstar membership?
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Re: ETFs or Mutual Funds?

Postby grabiner » Tue Dec 04, 2012 9:04 pm

nisiprius wrote:
grabiner wrote:
Doc wrote:Another current interview from M* on ETF trading whcih may be relevant:

Best Practices for ETF Trading


The link doesn't work on a direct click, but you can search for the title and get to the video.
It worked for me. Maybe you need to have signed up for the no-cost basic Morningstar membership?


I am a member, but it didn't work for some reason; possibly you have to be already logged in (I log in automatically from my home computer). The link works now.
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Re: ETFs or Mutual Funds?

Postby nedsaid » Wed Dec 05, 2012 12:21 am

My take on this is that index mutual funds would be the superior investment because there are no commissions on a purchase, and no commissions when you are liquidating shares in retirement.

That being said, I own both Index based ETF's and Index Mutual Funds in my retirement portfolios.

What I am not sure of is if you can reinvest dividends in an ETF like you would for a DRIP. And if you could, if you do it without fees. I think the answer to both is no. Could someone answer this?

Thanks.
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Re: ETFs or Mutual Funds?

Postby nedsaid » Wed Dec 05, 2012 12:25 am

Good article. It answered my question on Dividend Reinvestment. The answer is yes with delays.

Thanks Taylor for posting the link.
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Re: ETFs or Mutual Funds?

Postby 22twain » Wed Dec 05, 2012 2:02 am

nedsaid wrote:What I am not sure of is if you can reinvest dividends in an ETF like you would for a DRIP. And if you could, if you do it without fees. I think the answer to both is no.


I have a couple of Vanguard ETFs in a brokerage account in a Roth IRA at T. Rowe Price. TRP re-invests the dividends for me without charging a fee. It does take a few days before TRP actually receives the dividend and reinvests it. They can also re-invest dividends in a taxable account, but I chose to have those dividends put into my money market sweep fund instead.
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Re: ETFs or Mutual Funds?

Postby livesoft » Wed Dec 05, 2012 6:35 am

nedsaid wrote:Good article. It answered my question on Dividend Reinvestment. The answer is yes with delays.

Thanks Taylor for posting the link.

Dividend reinvestment of your ETF dividends is a function of your broker. My experience is that TDAmeritrade does it free and without delays. That is, as soon as the money is available and the stock market is open, TDAmeritrade buys new shares for you with your dividend.

Perhaps though, the video was hinting about the ex-dividend date, the record date, and the payable date without explaining them.

Although not about re-investment, but about timeliness of dividend payment, see also: viewtopic.php?f=1&t=87742

And here is a thread about payment dates and timeliness of mutual fund distributions: viewtopic.php?t=65205
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Re: ETFs or Mutual Funds?

Postby peanutbuddy » Wed Dec 05, 2012 8:48 am

If I buy the ETF instead of the mutual fund am I going to see the same approximate returns (within 1% or 2%) after five years that I would have seen with the mutual fund??
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Re: ETFs or Mutual Funds?

Postby dbr » Wed Dec 05, 2012 9:53 am

peanutbuddy wrote:If I buy the ETF instead of the mutual fund am I going to see the same approximate returns (within 1% or 2%) after five years that I would have seen with the mutual fund??


The five year return for VTI is 1.90%, the five year return for VTSAX (Admiral) is 1.91%.
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ETFs and Mutual Funds returns; tax-efficiency.

Postby Taylor Larimore » Wed Dec 05, 2012 10:45 am

Update:

The 5-year before-tax return for VTI (Total Stock Market ETF) is 1.92%; 5-year after-tax return 1.57% = .35% lost to taxes

The 5year before-tax return for VTSAX (Total Stock Market Mutual Fund) is 1.91%; 5-year after-tax return 1.60% = .31% lost to taxes

Conclusion: The difference in returns and taxes during the past 5-years between the Total Stock Market ETF and Mutual Fund was meaningless.

http://performance.morningstar.com/fund ... tion?t=VTI

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Taylor
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Re: ETFs or Mutual Funds?

Postby Khanmots » Wed Dec 05, 2012 11:01 am

I use mutual funds for simplicity unless the ETF is significantly superior in terms of cost (in my case that'd be Vanguard International Small - VSS).

nedsaid wrote:What I am not sure of is if you can reinvest dividends in an ETF like you would for a DRIP. And if you could, if you do it without fees. I think the answer to both is no. Could someone answer this?


The broker running my 401k SDBA allows for dividend reinvestment. I don't believe there are any fees associated with this. I think my brokerage is provided by State Street.
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