529 funds available?

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Jrad82
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529 funds available?

Post by Jrad82 »

Our daughter is turning 2 and we want to start a 529 college fund for her. We will start with the $3,000 to open the fund and plan to contribute $3,000 to $5000 a year until there’s around $50,000 in there and hopefully the growth will get us close to what is needed for a four year college when she is ready 18/19years. We will most likely go with 529 nevada being that we live in California and there’s no fund available for this state.
After doing some research looks like there is about 20funds to choose from on vanguard site. I have read to spread it out in four funds 25% in each fund (aggressive growth, growth, growth &income, & international)
But after looking last night at what is available the vanguard 500 index had lowest ER .12% and had best returns from 1yr-40%,3yr-18%, 10yr-11% and since inception in 2002 at 10.8% beating even the total stock index when compared side by side. Originally we were just going to put it all in aggressive growth or total stock index and let it ride until after high school and do a 60/40 stocks/bonds I’m looking for any information or others experience for the best option and thank you in advance. We are debt free, live in a paid for home worth about $400,000, single income family $90,000 a year and contribute $12,000 a year to our Roth IRA’s about $70,000 total
into total stock index-$20,000,growth-$15,000, growth & income-$15,000,& international growth-$12,000, and about $9,000 in settlement funds been DCA for now because prices are high. After reading 3fund portfolio we are working on trading all our money in IRA’s into total stock & total international and add total bond’s once closer to retirement.
Any thoughts?
Last edited by Jrad82 on Fri Jul 16, 2021 9:57 pm, edited 1 time in total.
livesoft
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Re: ETF or Funds?

Post by livesoft »

Wiki This signature message sponsored by sscritic: Learn to fish.
TropikThunder
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Re: ETF or Funds?

Post by TropikThunder »

Mutual funds are beer in a can. There’s really only one way to open it, and some say the beer stays colder. ETF’s are beer in a bottle. There are a bunch of ways to open it: some use a simple bottle opener, some like to hold the bottle cap on the edge of a table and whack down on the bottle, sending the cap flying dramatically. I’ve even seen some people open it with their teeth, and of course there’s always the hammer chop that takes off the top of the glass neck too. And you might get a penny or two if you return the bottle. But the beer inside is the same.
UpperNwGuy
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Re: ETF or Funds?

Post by UpperNwGuy »

If you like to invest the full amount of your monthly contribution, with nothing left over, you want mutual funds. If you monthly contribution is $500, and the price of an ETF share is $395, then the extra $105 doesn't get invested that month.
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LiveSimple
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Re: ETF or Funds?

Post by LiveSimple »

UpperNwGuy wrote: Sat Mar 13, 2021 4:43 pm If you like to invest the full amount of your monthly contribution, with nothing left over, you want mutual funds. If you monthly contribution is $500, and the price of an ETF share is $395, then the extra $105 doesn't get invested that month.
Not anymore, with Fidelity you can buy ETF in dollars
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Orangutan
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Re: ETF or Funds?

Post by Orangutan »

It does not matter at all between VTI and VTSAX. You’re better off spending time thinking about quite literally anything else. The only reason I chose ETFs is for brokerage transfer ease. For example, if I moved to Fidelity they may charge to purchase other fund company mutual funds. But I could have easily chosen VTSAX and it wouldn’t have mattered because Vanguard allows you to convert to VTI for free (though not the other way around).
ivgrivchuck
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Re: ETF or Funds?

Post by ivgrivchuck »

Jrad82 wrote: Sat Mar 13, 2021 3:45 pm I currently own VTSAX in my IRA and want to understand the difference between that fund and VTI ? Which is better or what’s the difference between Funds and ETF?
Talking about the difference at work and I didn’t have a good answer which is better and why then doing a little research on vanguard site we noticed VTI has a lower expense ratio but more $ per share and VTSAX had slightly higher expense ratio but lower $ per share 🤔
Any thoughts? Thank you, to all the true bogleheads I’m new to investing and curious what’s best for portfolio.
I’m i able to change to an ETF if better or just let it ride in VSTAX index fund?
Whatever works for you.

I hold etfs in taxable and funds in IRAs.

The net result is the same.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
Doctor Rhythm
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Re: ETF or Funds?

Post by Doctor Rhythm »

There are some differences that you can read about in the link provided by livesoft above. For your particular situation (VTSAX vs VTI in an IRA), none of them are that important. If you’re happy with the mechanics of how you invest, then I wouldn’t change anything.

By the way, it will save you time and angst in the future to know that you shouldn’t look at the price per share when comparing funds or deciding how to invest. It doesn’t matter that Vanguard’s VXXXX has a higher price than Fidelity’s FXXXX. It’s an apples to oranges thing.
Last edited by Doctor Rhythm on Fri Jun 18, 2021 1:54 am, edited 1 time in total.
UpperNwGuy
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Re: ETF or Funds?

Post by UpperNwGuy »

LiveSimple wrote: Sat Mar 13, 2021 4:47 pm
UpperNwGuy wrote: Sat Mar 13, 2021 4:43 pm If you like to invest the full amount of your monthly contribution, with nothing left over, you want mutual funds. If you monthly contribution is $500, and the price of an ETF share is $395, then the extra $105 doesn't get invested that month.
Not anymore, with Fidelity you can buy ETF in dollars
True, but that only helps people who use Fidelity, not the users of Vanguard, Schwab, Merrill Edge, and the other brokers. Also, it should be noted that Fidelity requires you to use their mobile app for the partial ETF purchases. You can't do it from your laptop or desktop computer.
dru808
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Re: ETF or Funds?

Post by dru808 »

UpperNwGuy wrote: Sat Mar 13, 2021 10:57 pm
LiveSimple wrote: Sat Mar 13, 2021 4:47 pm
UpperNwGuy wrote: Sat Mar 13, 2021 4:43 pm If you like to invest the full amount of your monthly contribution, with nothing left over, you want mutual funds. If you monthly contribution is $500, and the price of an ETF share is $395, then the extra $105 doesn't get invested that month.
Not anymore, with Fidelity you can buy ETF in dollars
Also, it should be noted that Fidelity requires you to use their mobile app for the partial ETF purchases. You can't do it from your laptop or desktop computer.
not true
sptm | vigi | xbt/eth
jmanter
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Re: ETF or Funds?

Post by jmanter »

Apparently there is an option to purchase in fractional ETF shares on the Fidelity website. Thanks dru808 for pointing that out.

But AFAIK, there's still no way to automate ETF purchases. That's why I prefer mutual funds in my IRAs. I still manually purchase ETFs in my taxable for the tax efficiency.
Topic Author
Jrad82
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Expense Ratio (ER)

Post by Jrad82 »

How does ER work? At the buy or the sell? I don’t see any charges in my history from Roth IRA account.
Can someone help with a theoretical picture with the difference of say a fund with 0.04%ER to a fund with 0.33%ER?
Doctor Rhythm
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Re: Expense Ratio (ER)

Post by Doctor Rhythm »

Jrad82 wrote: Fri Jun 18, 2021 12:02 am How does ER work? At the buy or the sell? I don’t see any charges in my history from Roth IRA account.
Can someone help with a theoretical picture with the difference of say a fund with 0.04%ER to a fund with 0.33%ER?
The expense ratio isn’t a separate fee or charge or anything that you pay explicitly. Rather, it’s the baked-in costs that reduce the fund’s return. You can think of it like friction or a constant head-wind that slows your forward progress.

Let’s say the S&P 500 returns 10% in a given year. A fund that tracks it very accurately but that also has a 0.33% ER will return 9.67%. A similar fund but with a 0.04% ER will return 9.96%. Same thing applies if the markets decline, the high ER fund will lose more money than an otherwise equivalent low ER fund.

What you’re referring to with regards to a fee paid when buying or selling is called a load. There are few absolutes in investing, but I’d say you should never pay a load.
calwatch
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Re: ETF or Funds?

Post by calwatch »

The expense ratio is taken out of the dividends. You can see this by comparing the dividends of a Vanguard Admiral fund with the Investor equivalent.

For example, in March VWENX (Wellington Admiral) paid 50.68 cents of dividend and long term capital gains on a share price of $77.89, or 0.65%. VWELX (Wellington Investor) paid 28.53 cents of dividend and long term capital gains on a share price of $45.11, or 0.63%. Multiply the difference by four (0.02% x 4), since the fund pays distributions quarterly, and that gets you the difference in expense ratio between the Admiral and Investor classes, or 0.08%.
Doctor Rhythm
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Re: ETF or Funds?

Post by Doctor Rhythm »

calwatch wrote: Fri Jun 18, 2021 1:42 am The expense ratio is taken out of the dividends. You can see this by comparing the dividends of a Vanguard Admiral fund with the Investor equivalent.

For example, in March VWENX (Wellington Admiral) paid 50.68 cents of dividend and long term capital gains on a share price of $77.89, or 0.65%. VWELX (Wellington Investor) paid 28.53 cents of dividend and long term capital gains on a share price of $45.11, or 0.63%. Multiply the difference by four (0.02% x 4), since the fund pays distributions quarterly, and that gets you the difference in expense ratio between the Admiral and Investor classes, or 0.08%.
Interesting. How does it work when the ER is greater than the dividend yield of the fund’s stocks? Say, an actively managed growth fund with a 2% ER and an SEC yield of 1%.
calwatch
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Re: ETF or Funds?

Post by calwatch »

SEC yield is net (after expenses are subtracted). https://www.bogleheads.org/wiki/SEC_Yield

If the yield is too low, like on a money market fund, the operators will have to waive expenses to avoid the fund from breaking the buck.
Doctor Rhythm
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Re: ETF or Funds?

Post by Doctor Rhythm »

calwatch wrote: Fri Jun 18, 2021 2:18 am SEC yield is net (after expenses are subtracted). https://www.bogleheads.org/wiki/SEC_Yield

If the yield is too low, like on a money market fund, the operators will have to waive expenses to avoid the fund from breaking the buck.
Thanks- perhaps I shouldn’t have said “SEC” yield as - yes, that’s net of fees/expenses. Rather, if the overall dividends of all the underlying holdings in a stock fund is 1%, does that effectively cap the ER at 1% as well?
calwatch
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Re: ETF or Funds?

Post by calwatch »

That’s an interesting question. You could have your share slowly get eroded. Here’s an example. Since the gold ETF doesn’t lay dividends the value of GLD slowly gets eroded over time.

The Trust's estimated ordinary operating expenses are accrued daily and are reflected in the NAV of the Trust. The Trust’s only recurring expense is the remuneration paid to the Sponsor. The Sponsor’s fee accrues daily at an annual rate equal to 0.40% of the daily NAV, in exchange for the Sponsor assuming the responsibility to pay all other ordinary fees and expenses of the Trust. These include fees and expenses of the Trustee, fees and expenses of the Custodian for the custody of the Trust’s gold bars, the fees and expenses of the Sponsor, certain taxes, the fees and expenses of the Marketing Agent, printing and mailing costs, legal and audit fees, registration fees, NYSE Arca listing fees and other marketing costs and expenses.
The ordinary operating expenses of the Trust accrue daily and are reflected in the NAV of the Trust. The Trustee sells gold held by the Trust on an as-needed basis to pay the Trust's expenses. As a result, the amount of gold represented by each share will be reduced over time, from an initial 1/10th of one ounce of gold. Because the expenses of the Trust will be offset by the sale of Trust gold, the amount of gold backing each share (Ounces Per Share) will decrease gradually.
Each share will initially represent 1/10th of one ounce of gold, but this will decline over time. This reduction in ounces per share will be reflected in the NAV of the Trust.
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Re: ETF or Funds?

Post by PapaB »

Surprised these simple things have not been mentioned. In my non-expert view, the primary functional differences between a mutual fund and an ETF are (a) the ETF has better tax efficiency (there are no short-term capital gains), and (b) the ETF generally trades like a stock and can be bought and sold at any time the exchange is open, while mutual funds only price at the end of the trading day and can only be bought and sold at that time. I am not sure what the issue is that several have mentioned, but my ETFs in fidelity automatically reinvest in themselves, etc. I see not advantages and several disadvantages to mutual funds vs. etfs. Mutual funds seem like an old-school investment vehicle. Would appreciate someone helping me understand what I am missing.
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anon_investor
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Re: ETF or Funds?

Post by anon_investor »

PapaB wrote: Fri Jun 18, 2021 4:47 am Surprised these simple things have not been mentioned. In my non-expert view, the primary functional differences between a mutual fund and an ETF are (a) the ETF has better tax efficiency (there are no short-term capital gains), and (b) the ETF generally trades like a stock and can be bought and sold at any time the exchange is open, while mutual funds only price at the end of the trading day and can only be bought and sold at that time. I am not sure what the issue is that several have mentioned, but my ETFs in fidelity automatically reinvest in themselves, etc. I see not advantages and several disadvantages to mutual funds vs. etfs. Mutual funds seem like an old-school investment vehicle. Would appreciate someone helping me understand what I am missing.
VTSAX and VTI have the SAME awesome tax efficiency because of Vanguard's patent on the dual ETF/mutual fund share class structure. This can only be said about certain Vanguard index mutual funds.
UpperNwGuy
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Re: ETF or Funds?

Post by UpperNwGuy »

PapaB wrote: Fri Jun 18, 2021 4:47 am I see not advantages and several disadvantages to mutual funds vs. etfs. Mutual funds seem like an old-school investment vehicle. Would appreciate someone helping me understand what I am missing.
Here is what you are missing:
— Many of us are old school people.
— We don't like trading during the workday.
— We don't like trying to do intraday timing of the market
— We don''t like having to choose what type of order to use, especially when we barely understand the differences between them.
— We don't like having residual funds left over after buying whole ETF shares.

Does that help you understand?
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wander
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Re: ETF or Funds?

Post by wander »

I like mutual funds but have to buy ETFs for international Real Estate. It doesn't make sense to pay .25% for buy/sell Vanguard VGRLX.
Cope
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Re: ETF or Funds?

Post by Cope »

jmanter wrote: Sun Mar 14, 2021 9:46 am Apparently there is an option to purchase in fractional ETF shares on the Fidelity website. Thanks dru808 for pointing that out.

But AFAIK, there's still no way to automate ETF purchases. That's why I prefer mutual funds in my IRAs. I still manually purchase ETFs in my taxable for the tax efficiency.
There could be other places that I’m unaware of, but you can automate ETF purchases at M1 Finance.
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augryphon
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Re: ETF or Funds?

Post by augryphon »

Jrad82 wrote: Sat Mar 13, 2021 3:45 pm I currently own VTSAX in my IRA and want to understand the difference between that fund and VTI ? Which is better or what’s the difference between Funds and ETF?
Talking about the difference at work and I didn’t have a good answer which is better and why then doing a little research on vanguard site we noticed VTI has a lower expense ratio but more $ per share and VTSAX had slightly higher expense ratio but lower $ per share 🤔
Any thoughts? Thank you, to all the true bogleheads I’m new to investing and curious what’s best for portfolio.
I’m i able to change to an ETF if better or just let it ride in VSTAX index fund?
I choose funds because they are harder to trade. When I own ETFs I watch the current share price like a hawk and I get the itch to trade. With funds, I just buy and hold. It’s just a mind game to overcome my own stupidity.
BabaWawa
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Re: ETF or Funds?

Post by BabaWawa »

UpperNwGuy wrote: Fri Jun 18, 2021 6:47 am
PapaB wrote: Fri Jun 18, 2021 4:47 am I see not advantages and several disadvantages to mutual funds vs. etfs. Mutual funds seem like an old-school investment vehicle. Would appreciate someone helping me understand what I am missing.
Here is what you are missing:
— Many of us are old school people.
— We don't like trading during the workday.
— We don't like trying to do intraday timing of the market
— We don''t like having to choose what type of order to use, especially when we barely understand the differences between them.
— We don't like having residual funds left over after buying whole ETF shares.

Does that help you understand?
Here's another way to look at it: Mutual fund holdouts still have cable tv and land lines. Yup they work, are reliable, and there's no effort involved in utilization.

When you want more flexibility, are willing to expend a little more effort, reduce your costs, and enjoy portability regardless of which brokerage you go to then it's time to cut the cord.

While mutual funds have been around forever and have a big head start, the inflow and outflow data the last few years is trending toward eventual extinction for this dinosaur.
Last edited by BabaWawa on Fri Jun 18, 2021 8:14 am, edited 1 time in total.
UpperNwGuy
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Re: ETF or Funds?

Post by UpperNwGuy »

BabaWawa wrote: Fri Jun 18, 2021 7:23 am
UpperNwGuy wrote: Fri Jun 18, 2021 6:47 am
PapaB wrote: Fri Jun 18, 2021 4:47 am I see not advantages and several disadvantages to mutual funds vs. etfs. Mutual funds seem like an old-school investment vehicle. Would appreciate someone helping me understand what I am missing.
Here is what you are missing:
— Many of us are old school people.
— We don't like trading during the workday.
— We don't like trying to do intraday timing of the market
— We don''t like having to choose what type of order to use, especially when we barely understand the differences between them.
— We don't like having residual funds left over after buying whole ETF shares.

Does that help you understand?
Here's another way to look at it: Mutual fund holdouts still have cable tv and land lines. Yup they work, are reliable, and there's no effort involved in utilization.

When you want more flexibility, are willing to expend a little more effort, reduce your costs, and enjoyed portability regardless of which brokerage you go to then it's time to cut the cord.

While mutual funds have been around forever and have a big head start, the inflow and outflow data the last few years is trending toward eventual extinction for this dinosaur.
For the record.... I haven't had cable TV in 20 years, and I haven't had a land line in 10 years.

As I've written previously, I'm perfectly willing to convert to ETFs when mutual funds stop being preferable, but that day appears to be more than ten years away. Until then, I'll stick with the mutual funds.

I am not willing to "expend a little more effort," because, for me, it is a lot more effort.
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Re: ETF or Funds?

Post by nisiprius »

Right now, today, if you personally trade stocks, feel comfortable with the process, and it just "feels right" to you, then you will almost certainly prefer ETFs and you should use ETFs.

If your experience is primarily with bank accounts, you will almost certainly prefer mutual funds and you should use mutual funds.

The money differences to a buy-and-hold investor are negligible. There are various "social" reasons why people engage in angels-on-the-head-of-a-pin debates on which is better. Alex_686 has convinced me that ETFs actually are superior for the firm that offers them, and therefore it would not be surprising to see them encouraging the use of ETFs. He has not convinced me that ETFs are any better for the investor.

You will often see the spurious argument advanced that ETFs are the wave of the future, you should not invest in mutual funds because they are dinosaurs and nobody cool uses them, and mutual funds will soon be gone so you might as well get with the program. In my opinion, the following diagram captures the essence of the "ETFs will be gone soon" argument. These are the numbers of dollars being held in mutual funds and ETFs, and a simple straight-line extrapolation of current trends:

Image
  • It's undeniable that today is four times as much money in mutual funds as in ETFs.
  • It's undeniable that ETFs' share of the combined market is increasing rapidly
  • The extrapolations are provided for amusement purposes only.
Last edited by nisiprius on Fri Jun 18, 2021 8:09 am, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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nisiprius
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Re: ETF or Funds?

Post by nisiprius »

Another "cultural" detail. This forum is about "Investing Advice Inspired by Jack Bogle" and it has a core investment philosophy. It's vague, and it's just guidance, we discuss all sorts of things but there is a central idea. It revolves around buying and holding a simple portfolio of a few low-cost index funds.

From this point of view there are essentially no important differences between mutual funds and ETFs, and all of the funds you need to implement the Bogleheads' philosophy are available both as mutual funds and as ETFs from a choice of quite a few big providers.

Some people get enthusiastic about ETFs because they can be used to invest speculate or "trade" in little slivers of the market, or unusual kinds of investments. In many cases the vehicles that support what they want to do are available as ETFs and not as mutual funds. Examples would include ETFs that focus on the stocks of companies engaged in "disruptive innovation," leveraged ETFs, ETFs that intentionally select the hot "meme stocks" popular on Reddit, little market slivers like "Emerging Markets Internet & Ecommerce," individual commodities, individual countries, etc.

There are various sophisticated "multifactor" and "risk parity" strategies in which every provider has their own strategy and does it differently, so some people might find that the particular strategy they prefer is only available as a mutual fund or only available as an ETF.

In other words, there is some stuff you can get as ETFs but not as mutual funds. And some stuff you can get as mutual funds but not as ETFs.

But the "normal" core Boglehead investments are available both ways.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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anon_investor
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Re: ETF or Funds?

Post by anon_investor »

Cope wrote: Fri Jun 18, 2021 6:56 am
jmanter wrote: Sun Mar 14, 2021 9:46 am Apparently there is an option to purchase in fractional ETF shares on the Fidelity website. Thanks dru808 for pointing that out.

But AFAIK, there's still no way to automate ETF purchases. That's why I prefer mutual funds in my IRAs. I still manually purchase ETFs in my taxable for the tax efficiency.
There could be other places that I’m unaware of, but you can automate ETF purchases at M1 Finance.
I am waiting for a larger brokerage like Fidelity or Schwab to buy or license M1 Finance's investment platform tech (or offer something similar). For now, Vanguard index mutual funds are good enough for me.
BabaWawa
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Re: ETF or Funds?

Post by BabaWawa »

UpperNwGuy wrote: Fri Jun 18, 2021 7:28 am
BabaWawa wrote: Fri Jun 18, 2021 7:23 am
UpperNwGuy wrote: Fri Jun 18, 2021 6:47 am
PapaB wrote: Fri Jun 18, 2021 4:47 am I see not advantages and several disadvantages to mutual funds vs. etfs. Mutual funds seem like an old-school investment vehicle. Would appreciate someone helping me understand what I am missing.
Here is what you are missing:
— Many of us are old school people.
— We don't like trading during the workday.
— We don't like trying to do intraday timing of the market
— We don''t like having to choose what type of order to use, especially when we barely understand the differences between them.
— We don't like having residual funds left over after buying whole ETF shares.

Does that help you understand?
Here's another way to look at it: Mutual fund holdouts still have cable tv and land lines. Yup they work, are reliable, and there's no effort involved in utilization.

When you want more flexibility, are willing to expend a little more effort, reduce your costs, and enjoyed portability regardless of which brokerage you go to then it's time to cut the cord.

While mutual funds have been around forever and have a big head start, the inflow and outflow data the last few years is trending toward eventual extinction for this dinosaur.
For the record.... I haven't had cable TV in 20 years, and I haven't had a land line in 10 years.

As I've written previously, I'm perfectly willing to convert to ETFs when mutual funds stop being preferable, but that day appears to be more than ten years away. Until then, I'll stick with the mutual funds.

I am not willing to "expend a little more effort," because, for me, it is a lot more effort.
For those of you at Vanguard, it makes complete sense to continue to use their mutual funds, there simply isn't a good reason to switch. But for the rest of us at Schwab, Fidelity, E-Trade, etc there is a better and cheaper mousetrap.
AnEngineer
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Re: ETF or Funds?

Post by AnEngineer »

livesoft wrote: Sat Mar 13, 2021 3:52 pm First, please read this:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
For me, the big difference is that you never know the price at which you sell (or buy) a mutual fund. That makes it very risky when trying to tax loss harvest or control taxable income. ETFs have limit orders which allow much better control.

Also, note the wiki is a little out of date: it's easy to get a broker that has $0 trades on all stocks and ETFs now.
TropikThunder
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Re: ETF or Funds?

Post by TropikThunder »

calwatch wrote: Fri Jun 18, 2021 1:42 am The expense ratio is taken out of the dividends. You can see this by comparing the dividends of a Vanguard Admiral fund with the Investor equivalent.
To clarify, the ER is not *only* taken out of the dividends, it is subtracted from price appreciation too (but you can’t really see it happening). The CAGR (dividends reinvested) for VWENX for calendar 2020 was 10.68% while that for VWELX was 10.60%, again matching the ER difference.

If the ER only came out of dividends, the actual cost to an investor would be much lower given that most recent index returns have been due to price appreciation rather than distributions.
Joe Public
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Re: ETF or Funds?

Post by Joe Public »

For a taxable account, I would like to have the to-the-penny purchasing and automated/recurring investing of mutual funds. However, I am at Schwab, which means I would incur fees when purchasing the particular Vanguard mutual funds I want. There are also some cost basis tracking issues with mutual funds held at Schwab that do not exist with ETFs held there. For me, those cons outweigh the pros of mutual funds in taxable at Schwab.

For those reasons, I prefer ETFs in taxable. If my account were at Vanguard instead of Schwab, I would likely hold mutual funds in taxable.

In the IRAs, we hold mutual funds.
Doctor Rhythm
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Re: ETF or Funds?

Post by Doctor Rhythm »

AnEngineer wrote: Fri Jun 18, 2021 10:09 am
livesoft wrote: Sat Mar 13, 2021 3:52 pm First, please read this:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
For me, the big difference is that you never know the price at which you sell (or buy) a mutual fund. That makes it very risky when trying to tax loss harvest or control taxable income. ETFs have limit orders which allow much better control.

Also, note the wiki is a little out of date: it's easy to get a broker that has $0 trades on all stocks and ETFs now.
While I see the theoretical argument you’re making, I don’t find that it makes a practical or actionable difference to me as a buy-and-hold investor. The degree of uncertainty on prices is (for me, again) far from “very risky.”

During the pandemic market slump, I TLH’d a low-to-mid six figure sum in mutual funds. I didn’t know what the exact selling price of VTSAX and VTIAX would be, but I knew the capital loss would be large. That’s all the info I needed. Maybe it would be loss of $50,000 or $49,000 or $52,000 — it didn’t matter. Similarly, when I used the proceeds from the sale to buy VFIAX and VFWAX on the same day, I didn’t know what their exact NAV would be, but it didn’t matter as it wouldn’t change my actions.
AnEngineer
Posts: 730
Joined: Sat Jun 27, 2020 4:05 pm

Re: ETF or Funds?

Post by AnEngineer »

Doctor Rhythm wrote: Fri Jun 18, 2021 3:05 pm
AnEngineer wrote: Fri Jun 18, 2021 10:09 am
livesoft wrote: Sat Mar 13, 2021 3:52 pm First, please read this:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
For me, the big difference is that you never know the price at which you sell (or buy) a mutual fund. That makes it very risky when trying to tax loss harvest or control taxable income. ETFs have limit orders which allow much better control.

Also, note the wiki is a little out of date: it's easy to get a broker that has $0 trades on all stocks and ETFs now.
While I see the theoretical argument you’re making, I don’t find that it makes a practical or actionable difference to me as a buy-and-hold investor. The degree of uncertainty on prices is (for me, again) far from “very risky.”

During the pandemic market slump, I TLH’d a low-to-mid six figure sum in mutual funds. I didn’t know what the exact selling price of VTSAX and VTIAX would be, but I knew the capital loss would be large. That’s all the info I needed. Maybe it would be loss of $50,000 or $49,000 or $52,000 — it didn’t matter. Similarly, when I used the proceeds from the sale to buy VFIAX and VFWAX on the same day, I didn’t know what their exact NAV would be, but it didn’t matter as it wouldn’t change my actions.
This is shaped by the fact that last year I did some TLH on some ETFs somewhere between 3-4pm. If they had been mutual funds, I would have had capital gains instead of losses because of a late-day run-up. If I actually had MFs and got burned, I would probably be screaming in every ETF vs. MF thread that MF are evil and should be avoided at all costs. I don't know what the odds of it happening again are, but I was in an actual scenario where the ETF vs MF made a big difference.
Doctor Rhythm
Posts: 983
Joined: Mon Jan 22, 2018 3:55 am

Re: ETF or Funds?

Post by Doctor Rhythm »

AnEngineer wrote: Fri Jun 18, 2021 3:41 pm
Doctor Rhythm wrote: Fri Jun 18, 2021 3:05 pm
AnEngineer wrote: Fri Jun 18, 2021 10:09 am
livesoft wrote: Sat Mar 13, 2021 3:52 pm First, please read this:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
For me, the big difference is that you never know the price at which you sell (or buy) a mutual fund. That makes it very risky when trying to tax loss harvest or control taxable income. ETFs have limit orders which allow much better control.

Also, note the wiki is a little out of date: it's easy to get a broker that has $0 trades on all stocks and ETFs now.
While I see the theoretical argument you’re making, I don’t find that it makes a practical or actionable difference to me as a buy-and-hold investor. The degree of uncertainty on prices is (for me, again) far from “very risky.”

During the pandemic market slump, I TLH’d a low-to-mid six figure sum in mutual funds. I didn’t know what the exact selling price of VTSAX and VTIAX would be, but I knew the capital loss would be large. That’s all the info I needed. Maybe it would be loss of $50,000 or $49,000 or $52,000 — it didn’t matter. Similarly, when I used the proceeds from the sale to buy VFIAX and VFWAX on the same day, I didn’t know what their exact NAV would be, but it didn’t matter as it wouldn’t change my actions.
This is shaped by the fact that last year I did some TLH on some ETFs somewhere between 3-4pm. If they had been mutual funds, I would have had capital gains instead of losses because of a late-day run-up. If I actually had MFs and got burned, I would probably be screaming in every ETF vs. MF thread that MF are evil and should be avoided at all costs. I don't know what the odds of it happening again are, but I was in an actual scenario where the ETF vs MF made a big difference.
I see how that could happen. That said, I think the issue was that the % loss you were planning to harvest was probably quite low. I generally don’t TLH until the market enters correction territory.
alex_686
Posts: 8799
Joined: Mon Feb 09, 2015 2:39 pm

Re: ETF or Funds?

Post by alex_686 »

TropikThunder wrote: Fri Jun 18, 2021 12:04 pm
calwatch wrote: Fri Jun 18, 2021 1:42 am The expense ratio is taken out of the dividends. You can see this by comparing the dividends of a Vanguard Admiral fund with the Investor equivalent.
To clarify, the ER is not *only* taken out of the dividends, it is subtracted from price appreciation too (but you can’t really see it happening). The CAGR (dividends reinvested) for VWENX for calendar 2020 was 10.68% while that for VWELX was 10.60%, again matching the ER difference.

If the ER only came out of dividends, the actual cost to an investor would be much lower given that most recent index returns have been due to price appreciation rather than distributions.
It is not subtracted from the dividends nor price appreciation. The funds expenses are not going to disappear in a down market.

Fund expenses work on accrual accounting. As such, a portion of the fund's expenses accrues daily as a liability. The fund's price, or NAV, or Net Asset Value, is (assets - liabilities) / # shares.

The sole purpose of dividends is to generate reportable transactions so you can report your income so you can do your taxes. Or, to be more specific, your net income. i.e. Gross Income (dividends, etc) - expenses. Because expenses reduces your income.

If a fund has no income (like dividends) it will still have expenses that need to be paid.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
UpperNwGuy
Posts: 5725
Joined: Sun Oct 08, 2017 7:16 pm

Re: ETF or Funds?

Post by UpperNwGuy »

AnEngineer wrote: Fri Jun 18, 2021 3:41 pm
Doctor Rhythm wrote: Fri Jun 18, 2021 3:05 pm
AnEngineer wrote: Fri Jun 18, 2021 10:09 am
livesoft wrote: Sat Mar 13, 2021 3:52 pm First, please read this:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
For me, the big difference is that you never know the price at which you sell (or buy) a mutual fund. That makes it very risky when trying to tax loss harvest or control taxable income. ETFs have limit orders which allow much better control.

Also, note the wiki is a little out of date: it's easy to get a broker that has $0 trades on all stocks and ETFs now.
While I see the theoretical argument you’re making, I don’t find that it makes a practical or actionable difference to me as a buy-and-hold investor. The degree of uncertainty on prices is (for me, again) far from “very risky.”

During the pandemic market slump, I TLH’d a low-to-mid six figure sum in mutual funds. I didn’t know what the exact selling price of VTSAX and VTIAX would be, but I knew the capital loss would be large. That’s all the info I needed. Maybe it would be loss of $50,000 or $49,000 or $52,000 — it didn’t matter. Similarly, when I used the proceeds from the sale to buy VFIAX and VFWAX on the same day, I didn’t know what their exact NAV would be, but it didn’t matter as it wouldn’t change my actions.
This is shaped by the fact that last year I did some TLH on some ETFs somewhere between 3-4pm. If they had been mutual funds, I would have had capital gains instead of losses because of a late-day run-up. If I actually had MFs and got burned, I would probably be screaming in every ETF vs. MF thread that MF are evil and should be avoided at all costs. I don't know what the odds of it happening again are, but I was in an actual scenario where the ETF vs MF made a big difference.
Tell us when last year this happened to you.
Doctor Rhythm
Posts: 983
Joined: Mon Jan 22, 2018 3:55 am

Re: ETF or Funds?

Post by Doctor Rhythm »

alex_686 wrote: Fri Jun 18, 2021 3:53 pm
TropikThunder wrote: Fri Jun 18, 2021 12:04 pm
calwatch wrote: Fri Jun 18, 2021 1:42 am The expense ratio is taken out of the dividends. You can see this by comparing the dividends of a Vanguard Admiral fund with the Investor equivalent.
To clarify, the ER is not *only* taken out of the dividends, it is subtracted from price appreciation too (but you can’t really see it happening). The CAGR (dividends reinvested) for VWENX for calendar 2020 was 10.68% while that for VWELX was 10.60%, again matching the ER difference.

If the ER only came out of dividends, the actual cost to an investor would be much lower given that most recent index returns have been due to price appreciation rather than distributions.
It is not subtracted from the dividends nor price appreciation. The funds expenses are not going to disappear in a down market.

Fund expenses work on accrual accounting. As such, a portion of the fund's expenses accrues daily as a liability. The fund's price, or NAV, or Net Asset Value, is (assets - liabilities) / # shares.

The sole purpose of dividends is to generate reportable transactions so you can report your income so you can do your taxes. Or, to be more specific, your net income. i.e. Gross Income (dividends, etc) - expenses. Because expenses reduces your income.

If a fund has no income (like dividends) it will still have expenses that need to be paid.
Thanks alex_686, I was waiting for you to chime in with first-hand knowledge. Makes sense - there are too many funds out there with exorbitant ER’s out of proportion to their income.
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