ETF vs Admiral (Vanguard)

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Engineer250
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ETF vs Admiral (Vanguard)

Post by Engineer250 »

Two accounts:

Emerging Markets ETF vs Admiral Shares (and small cap international):

1) I currently have ~$1500 in emerging markets ETF (VWO) in my Roth IRA. I expect to get more via a rollover end of this year or next such that I could get the admiral shares (VEMAX). I'll also have some in a traditional IRA that I can invest. If the expense ratio is the same for the ETF vs the admiral shares, which one makes the most sense? Is there a risk to selling the ETF in order to buy into the admiral shares of emerging markets?

2) Vanguard international small cap - there's no admiral shares of vanguard international small cap ETF (VSS) so does it make sense to always be in the ETF for this rather than the investor shares? [these two funds are of particular interest because I'm mostly in the TSP so trying to get some of the stuff I'm otherwise missing]

Traditional IRA:

1) Spouse's traditional IRA will get invested in the traditional 3 fund portfolio suggested here. Does it make sense to automatically go with the admiral shares of Total US Stock Market (VTSAX) and Total International (VTIAX) straight off the bat since they will have enough for the minimums? Or is there any reason to go ETF?

Both of these are buy/hold type accounts if that makes any difference to strategy. The only benefit I can see of admiral shares versus ETF is that you can invest your total balance, otherwise for Vanguard the fees between an equivalent ETF and admiral share are the same.
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triceratop
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Re: ETF vs Admiral (Vanguard)

Post by triceratop »

Engineer250 wrote:Two accounts:

Emerging Markets ETF vs Admiral Shares (and small cap international):

1) I currently have ~$1500 in emerging markets ETF (VWO) in my Roth IRA. I expect to get more via a rollover end of this year or next such that I could get the admiral shares (VEMAX). I'll also have some in a traditional IRA that I can invest. If the expense ratio is the same for the ETF vs the admiral shares, which one makes the most sense? Is there a risk to selling the ETF in order to buy into the admiral shares of emerging markets?

2) Vanguard international small cap - there's no admiral shares of vanguard international small cap ETF (VSS) so does it make sense to always be in the ETF for this rather than the investor shares? [these two funds are of particular interest because I'm mostly in the TSP so trying to get some of the stuff I'm otherwise missing]

Traditional IRA:

1) Spouse's traditional IRA will get invested in the traditional 3 fund portfolio suggested here. Does it make sense to automatically go with the admiral shares of Total US Stock Market (VTSAX) and Total International (VTIAX) straight off the bat since they will have enough for the minimums? Or is there any reason to go ETF?

Both of these are buy/hold type accounts if that makes any difference to strategy. The only benefit I can see of admiral shares versus ETF is that you can invest your total balance, otherwise for Vanguard the fees between an equivalent ETF and admiral share are the same.
(1) You can minimize this risk by selling the ETF towards the end of the business day (but while there is still liquidity, i.e. not 3:59pm) and purchasing the mutual fund that same day (also prior to 3:59pm). That way you're not out of the market for more than, say, 15-30 minutes. However one caveat is that I think the settlement times work against you here (3 business days vs 1 business day); I am not sure how Vanguard looks at this. Someone here knows, and I recall seeing that they actually do not care. I'm sure someone will jump in.

(2) The liquidity for VSS can often be very poor. Fortunately, Vanguard allows you to convert mutual fund shares (purchased at NAV with 0 spread) to ETF shares. Then one way to proceed is to buy mutual funds and immediately convert to ETFs after settlement, thus avoiding the spreads (when selling this is still a problem).

Traditional IRA:

There is no downside to using the admiral share mutual funds, since you can always convert the funds to ETF shares, later, by calling Vanguard.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
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jhfenton
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Re: ETF vs Admiral (Vanguard)

Post by jhfenton »

triceratop wrote:
Engineer250 wrote:Two accounts:

Emerging Markets ETF vs Admiral Shares (and small cap international):

1) I currently have ~$1500 in emerging markets ETF (VWO) in my Roth IRA. I expect to get more via a rollover end of this year or next such that I could get the admiral shares (VEMAX). I'll also have some in a traditional IRA that I can invest. If the expense ratio is the same for the ETF vs the admiral shares, which one makes the most sense? Is there a risk to selling the ETF in order to buy into the admiral shares of emerging markets?

2) Vanguard international small cap - there's no admiral shares of vanguard international small cap ETF (VSS) so does it make sense to always be in the ETF for this rather than the investor shares? [these two funds are of particular interest because I'm mostly in the TSP so trying to get some of the stuff I'm otherwise missing]

Traditional IRA:

1) Spouse's traditional IRA will get invested in the traditional 3 fund portfolio suggested here. Does it make sense to automatically go with the admiral shares of Total US Stock Market (VTSAX) and Total International (VTIAX) straight off the bat since they will have enough for the minimums? Or is there any reason to go ETF?

Both of these are buy/hold type accounts if that makes any difference to strategy. The only benefit I can see of admiral shares versus ETF is that you can invest your total balance, otherwise for Vanguard the fees between an equivalent ETF and admiral share are the same.
(1) You can minimize this risk by selling the ETF towards the end of the business day (but while there is still liquidity, i.e. not 3:59pm) and purchasing the mutual fund that same day (also prior to 3:59pm). That way you're not out of the market for more than, say, 15-30 minutes. However one caveat is that I think the settlement times work against you here (3 business days vs 1 business day); I am not sure how Vanguard looks at this. Someone here knows, and I recall seeing that they actually do not care. I'm sure someone will jump in.

(2) The liquidity for VSS can often be very poor. Fortunately, Vanguard allows you to convert mutual fund shares (purchased at NAV with 0 spread) to ETF shares. Then one way to proceed is to buy mutual funds and immediately convert to ETFs after settlement, thus avoiding the spreads (when selling this is still a problem).

Traditional IRA:

There is no downside to using the admiral share mutual funds, since you can always convert the funds to ETF shares, later, by calling Vanguard.
1) Yes. If you're on the combined brokerage platform in a non-margin account (including a Roth IRA), you get a free float on the settlement difference. As soon as you sell an ETF, the proceeds are available to place an order for a Vanguard mutual fund. My advice with VWO is to make the swap on an up day in the U.S. markets, especially an up afternoon. VWO will tend to trade at a premium at the end of the day. Vanguard will fair-value adjust the reported NAV of VWO and price of VEMAX, but not usually all the way. At a minimum, you won't sell out at a big discount to NAV on an up day. I have never seen any lack of liquidity in VWO, even at 3:5x. It's a very large, very liquid ETF, with $0.01 spreads. You just need to allow yourself time to place the order for VEMAX.

(In a margin account, you can sell an ETF and buy a mutual fund immediately, but they will ding you for two days of margin interest.)

2) I would hold onto VSS, because there is no Admiral Share class for it. It's not nearly as liquid as VWO, but it's manageable with care, and the spreads don't outweigh the higher expenses.

I generally prefer Admiral Shares in retirement accounts because they make for easy and frictionless rebalancing, even across accounts.

But I own VSS in 4 accounts because of the lack of Admiral Shares. 3 of those I would swap for Admiral Shares in a heartbeat.

I do own VWO (and VSS) in taxable, and I will keep those as ETFs. For one, those positions start off too small for Admiral Shares and cannot easily be swapped later if they have gains. (Mine currently do.) I also like the discrete nature of the ETFs for tax-loss harvesting.
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triceratop
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Re: ETF vs Admiral (Vanguard)

Post by triceratop »

ETFs easily win for tax gain harvesting, too. I'm probably going to convert my taxable account holdings (currently mostly Admiral shares) to ETFs in preparation for harvesting.

jhfenton is right about the spread for VSS being less than the ER difference, but I'd argue you can work things out even more in your advantage even further by doing the investor shares conversion.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
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