ETF vs Investor Shares?

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tempestam83
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Joined: Wed Jan 04, 2017 8:52 am

ETF vs Investor Shares?

Postby tempestam83 » Mon Jan 09, 2017 11:02 am

I have $9,000 in my Roth that I'm looking to divide equally among the following:

VB (Vanguard Small Cap ETF)
VNQ (REIT ETF)
BND (Total Bond Market)

With $3,000 to go into each, is it worth the extra expense to buy at investor shares vs ETF?

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CABob
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Location: Southern California

Re: ETF vs Investor Shares?

Postby CABob » Mon Jan 09, 2017 1:27 pm

No.
There are many reasons why one might want and prefer to use the investor share class of mutual funds vs. an ETF, but I don't believe there is a specific advantage to use the mutual fund that would warrant the higher expense ratio. Personally however I would prefer the mutual fund even at the higher ER. I also know that when the fund balance grows to $10K it will convert to Admiral class with an ER the same as the ETF.
For more information you might look at the wiki sections on ETFs - https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds or https://www.bogleheads.org/wiki/Exchange-traded_fund
Bob

tempestam83
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Joined: Wed Jan 04, 2017 8:52 am

Re: ETF vs Investor Shares?

Postby tempestam83 » Mon Jan 09, 2017 1:37 pm

My thinking would be to go in as investor shares, then they would convert to Admiral after a few years of contributions.

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jhfenton
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Re: ETF vs Investor Shares?

Postby jhfenton » Mon Jan 09, 2017 2:10 pm

If I had $9,000 to divide in a Roth IRA among those 3 funds 1/3 each, I'd buy as many shares of VBR and VNQ as I could with $3,000 each, and then put the remaining $3,0xx in VBMFX (Total Bond Investor Shares). And I'd keep that basic principle up as I added new money. Once I got to $10,000 each, I'd sell the VBR and VNQ and buy the corresponding Admiral Shares. The Total Bond would convert to Admiral.

Advantages:
1. I'd be close to my desired allocation.
2. I'd always have a fund to add the odd dollars and cents to.
3. Total Bond has the small ER difference between the ETF/Admiral and Investor shares (10 bp vs 12 bp or 14 bp).
4. I prefer bond mutual fund shares.

Geologist
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Re: ETF vs Investor Shares?

Postby Geologist » Mon Jan 09, 2017 5:16 pm

One thing to keep in mind is that for small account sizes ($3000 or even up to $9000, just below the dividing line between Investor and Admiral/ETF shares), the difference in dollars between the expenses of the share classes is not significant. For the Total Bond Market, for example, on an account of $9000, the expense difference is $9 per year. The other funds will be roughly similar, so you would pay (at the moment) about $9/year extra to buy Investor mutual fund shares rather than ETF shares.

Therefore, you should make your choice of mutual fund vs. ETF on grounds other than expenses.


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