Vanguard... Possible to auto invest in ETF's?

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Grasshopper911
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Vanguard... Possible to auto invest in ETF's?

Post by Grasshopper911 » Sat Jul 01, 2017 11:22 pm

Probably a stupid question, but I've not been successful in finding an answer yet.

I am investing a set amount of money each month into a Vanguard Brokerage Account with intent of purchasing ETFs.

I'd like to set this up so each month it automatically invests into three ETF's at a set % allocation.

I have been successful in setting up an auto transfer from my bank account to my Vanguard Brokerage Account, but I can't find a way to then convert this into ETF''s without making a manual transaction each month.

Is there an easier way?

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triceratop
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Re: Vanguard... Possible to auto invest in ETF's?

Post by triceratop » Sat Jul 01, 2017 11:26 pm

Grasshopper911 wrote:Probably a stupid question, but I've not been successful in finding an answer yet.

I am investing a set amount of money each month into a Vanguard Brokerage Account with intent of purchasing ETFs.

I'd like to set this up so each month it automatically invests into three ETF's at a set % allocation.

I have been successful in setting up an auto transfer from my bank account to my Vanguard Brokerage Account, but I can't find a way to then convert this into ETF''s without making a manual transaction each month.

Is there an easier way?
This is not possible. ETFs are bought and sold on the secondary market at market prices rather than by issuance/redemption directly with the mutual fund company. Therefore you need to decide how much you are willing to pay at a particular time during a trading day.

You could auto-invest in Mutual funds and then regularly call to convert the mutual funds to ETFs. I would not consider this easier.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Grasshopper911
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Re: Vanguard... Possible to auto invest in ETF's?

Post by Grasshopper911 » Sat Jul 01, 2017 11:32 pm

Thanks for the quick reply! :sharebeer

Certainly unfortunate as it seems it would be a useful tool. I agree completely prices change often, but if one is investing allocations by a set %, this would simply reallocate how many shares of each you purchase with each transaction

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Re: Vanguard... Possible to auto invest in ETF's?

Post by unclescrooge » Sun Jul 02, 2017 12:31 am

triceratop wrote:
Grasshopper911 wrote:Probably a stupid question, but I've not been successful in finding an answer yet.

I am investing a set amount of money each month into a Vanguard Brokerage Account with intent of purchasing ETFs.

I'd like to set this up so each month it automatically invests into three ETF's at a set % allocation.

I have been successful in setting up an auto transfer from my bank account to my Vanguard Brokerage Account, but I can't find a way to then convert this into ETF''s without making a manual transaction each month.

Is there an easier way?
This is not possible. ETFs are bought and sold on the secondary market at market prices rather than by issuance/redemption directly with the mutual fund company. Therefore you need to decide how much you are willing to pay at a particular time during a trading day.

You could auto-invest in Mutual funds and then regularly call to convert the mutual funds to ETFs. I would not consider this easier.
Are you sure this is true of vanguard ETFs? I thought they were just another class of mutual fund shares.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by triceratop » Sun Jul 02, 2017 2:17 am

unclescrooge wrote:
triceratop wrote:
Grasshopper911 wrote:Probably a stupid question, but I've not been successful in finding an answer yet.

I am investing a set amount of money each month into a Vanguard Brokerage Account with intent of purchasing ETFs.

I'd like to set this up so each month it automatically invests into three ETF's at a set % allocation.

I have been successful in setting up an auto transfer from my bank account to my Vanguard Brokerage Account, but I can't find a way to then convert this into ETF''s without making a manual transaction each month.

Is there an easier way?
This is not possible. ETFs are bought and sold on the secondary market at market prices rather than by issuance/redemption directly with the mutual fund company. Therefore you need to decide how much you are willing to pay at a particular time during a trading day.

You could auto-invest in Mutual funds and then regularly call to convert the mutual funds to ETFs. I would not consider this easier.
Are you sure this is true of vanguard ETFs? I thought they were just another class of mutual fund shares.
They are just another share class, but I don't know how that conflicts with anything I said. Ok, sure, you may be able to redeem with Vanguard for amounts in the millions of dollars but I haven't heard of anyone doing this.
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Re: Vanguard... Possible to auto invest in ETF's?

Post by AlohaJoe » Sun Jul 02, 2017 4:07 am

triceratop wrote:
Grasshopper911 wrote: Is there an easier way?
This is not possible. ETFs are bought and sold on the secondary market at market prices rather than by issuance/redemption directly with the mutual fund company. Therefore you need to decide how much you are willing to pay at a particular time during a trading day.
While it isn't offered via Vanguard I disagree with triceratop that it isn't possible at all.

You can buy ETFs with market-on-close or market-on-open order which ends up being very similar to placing an order for a mutual fund; you don't need to decide on a price. But I don't know of anything that easily ties that into a monthly automatic purchase of ETFs other than.......

What's more, plenty of places offer automated investing with ETFs (i.e. most robo-advisors such as Wealthfront, Betterment, Schwab, Robinhood, and Acorns) so clearly there aren't any significant technical limitations.

(I assume Vanguard's robo-advisor uses mutual funds instead of ETFs for the automated investing but I don't actually know.)

I probably wouldn't switch to one of them just for this one feature.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by objectivefunction » Sun Jul 02, 2017 6:18 am

Another option is CaptialOne Investing. You can setup automated investment plans that invest dollar amounts in stock portfolios, purchasing fractional shares as necessary. I used it back when it was called Sharebuilder. You have to pay commissions, but their commissions are pretty good relatively speaking. You would just want to be investing enough that the commissions weren't a large percentage of your investment.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by Helo80 » Sun Jul 02, 2017 7:28 am

I don't know a whole lot about ETFs other than basics of how they work. I don't know 100% ins/outs.

However, for Vanguard's regular investment accounts, I have exactly what you describe OP. Payday is every other Friday for me. On non-Friday paydays, I have Vanguard setup with an ACH withdrawal on my checking to invest in 3 index funds with a specific dollar amount (vanguard can also do %).

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Re: Vanguard... Possible to auto invest in ETF's?

Post by Explorer » Sun Jul 02, 2017 7:51 am

Helo80 wrote:I don't know a whole lot about ETFs other than basics of how they work. I don't know 100% ins/outs.

However, for Vanguard's regular investment accounts, I have exactly what you describe OP. Payday is every other Friday for me. On non-Friday paydays, I have Vanguard setup with an ACH withdrawal on my checking to invest in 3 index funds with a specific dollar amount (vanguard can also do %).
Tell me more how you do ACH into Vanguard so a certain % goes into each mutual fund? Is it that you set up auto investment plan and indicate how many dollars into each fund every time?

Thanks in advance.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by lyrictulip » Sun Jul 02, 2017 8:14 am

This is not possible. ETFs are bought and sold on the secondary market at market prices rather than by issuance/redemption directly with the mutual fund company. Therefore you need to decide how much you are willing to pay at a particular time during a trading day.
I've never understood why this is not possible. Since I don't time the market and I buy and hold for the long term, I don't actually care exactly what price I pay for an ETF. I would be perfectly happy, for instance, entering an automatic ETF order that says something like, "buy 5 shares of VT on July 5th IF the bid-ask spread is less than 4 cents. [second part is to avoid executing at 09:30:03 at maximal bid ask spread]" It would make investing in ETFs much easier.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by epictetus » Sun Jul 02, 2017 8:30 am

can the Vanguard brokerage account be set up to purchase mutual funds automatically? if so you could just do that and forget the ETFs.
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Re: Vanguard... Possible to auto invest in ETF's?

Post by David Jay » Sun Jul 02, 2017 8:35 am

epictetus wrote:can the Vanguard brokerage account be set up to purchase mutual funds automatically?
Absolutely - Vanguard mutual funds are purchased in "penny" amounts, so you want to purchase $37.23 of Total Stock and $17.29 of Total Bond every 2 weeks, for example, you can set up an automatic transaction to do that.

[edit] Grasshopper - what is your objection to purchasing the mutual fund instead of an ETF? In Vanguard's case, the ETF and the MF are exactly the same holding, just different share classes.
Last edited by David Jay on Sun Jul 02, 2017 8:38 am, edited 1 time in total.
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Re: Vanguard... Possible to auto invest in ETF's?

Post by whodidntante » Sun Jul 02, 2017 8:37 am

It's not physically impossible, but I don't believe Vanguard has that capability. If doing your trades once a month is too much work, it wouldn't make a huge difference in your results to accumulate cash in a money market fund and then trade once a quarter, or twice a year.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by F150HD » Sun Jul 02, 2017 8:38 am

I do this w/ a tax-deferred account at work (guessing many do?), seems like one should be able to do the same w/ taxable?

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Re: Vanguard... Possible to auto invest in ETF's?

Post by goingup » Sun Jul 02, 2017 8:56 am

Use mutual funds. We have been auto investing in mutual funds on a set day of the month for nearly 20 years. Actually some funds are purchased quarterly too. I have no desire to trade and prefer to set and forget it.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by oldcomputerguy » Sun Jul 02, 2017 9:16 am

David Jay wrote:Grasshopper - what is your objection to purchasing the mutual fund instead of an ETF? In Vanguard's case, the ETF and the MF are exactly the same holding, just different share classes.
Only facet that comes to mind immediately (and I don't speak for the OP) is that, if the OP doesn't have enough to get into Admiral shares, the ETF shares would have lower ER than the (Investor-class) mutual fund shares.
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Re: Vanguard... Possible to auto invest in ETF's?

Post by triceratop » Sun Jul 02, 2017 10:04 am

AlohaJoe wrote:
triceratop wrote:
Grasshopper911 wrote: Is there an easier way?
This is not possible. ETFs are bought and sold on the secondary market at market prices rather than by issuance/redemption directly with the mutual fund company. Therefore you need to decide how much you are willing to pay at a particular time during a trading day.
While it isn't offered via Vanguard I disagree with triceratop that it isn't possible at all.

You can buy ETFs with market-on-close or market-on-open order which ends up being very similar to placing an order for a mutual fund; you don't need to decide on a price. But I don't know of anything that easily ties that into a monthly automatic purchase of ETFs other than.......

What's more, plenty of places offer automated investing with ETFs (i.e. most robo-advisors such as Wealthfront, Betterment, Schwab, Robinhood, and Acorns) so clearly there aren't any significant technical limitations.

(I assume Vanguard's robo-advisor uses mutual funds instead of ETFs for the automated investing but I don't actually know.)

I probably wouldn't switch to one of them just for this one feature.
While I'm aware of that option I don't recommend it because market on open/close orders don't necessarily have much to do with the NAV. The famed ETF consultants paper makes this point repeatedly. I consider it too dangerous to use with any regularity.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Vanguard... Possible to auto invest in ETF's?

Post by lyrictulip » Sun Jul 02, 2017 10:19 am

While I'm aware of that option I don't recommend it because market on open/close orders don't necessarily have much to do with the NAV. The famed ETF consultants paper makes this point repeatedly. I consider it too dangerous to use with any regularity.
Which is why I think it would be brilliant if you could set a market order based on maximum bid-ask spread, +/- set a rule like, "don't execute before 11am or after 3pm." Alas, Vanguard has no such capability, so I continue to enter my monthly ETF investments manually, and much suffering ensues therefrom :wink: .

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Re: Vanguard... Possible to auto invest in ETF's?

Post by SpringMan » Sun Jul 02, 2017 10:41 am

No, ETFs are purchased in whole integer amounts based on a price that varies during the day when the market is open. You can't buy fractional shares, dividend/cap gains automatic reinvestment being one exception and mutual fund conversion another.
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Re: Vanguard... Possible to auto invest in ETF's?

Post by livesoft » Sun Jul 02, 2017 11:01 am

Although ETFs typically have to be bought in integer shares, if one has excess money in the cash sweep account, say because they use the cash as an emergency fund, too, and since ETF share prices don't change that much over the course of a month or quarter, then it should be possible to schedule an integer share buy every month or so and have more than enough cash to cover the purchase. One can just use periodic investment/contribution into the cash sweep account in order to top it up the day before the scheduled ETF purchases. That is, the cash sweep account just serves as a temporary buffer.

Of course, Vanguard does not let you schedule those automated periodic ETF trades:
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Re: Vanguard... Possible to auto invest in ETF's?

Post by Helo80 » Sun Jul 02, 2017 11:15 am

Explorer wrote: Tell me more how you do ACH into Vanguard so a certain % goes into each mutual fund? Is it that you set up auto investment plan and indicate how many dollars into each fund every time?

This is only for my taxable account as IRA is maxed out and employer handles 401k.... however, for my taxable index fund account on Vanguard, I open up that section and one of the menu options is to allow for automatic investment plans. Then, you're allowed to specify the dollar amount you want to invest in, what index funds (or other vanguard holdings) the money will go to (either as a fixed dollar amount or percentage), how often to withdraw (day, week, month) and when to start and end said withdrawal.

For me, I have an open-ended order to invest a fixed dollar amount in three index funds every other Friday. I set it and forget it. But, as this is not ETFs and vanguard's regular mutual funds, Vanguard will just give me whatever fractional share my contribution is worth that day.

You may have to login to see more how it's done: https://investor.vanguard.com/investing ... es?lang=en

Again, I don't do ETFs. But, with my taxable Vanguard holdings in my account, what I do is more or less exactly the direction you seem to be going.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by Grasshopper911 » Sun Jul 02, 2017 5:45 pm

David Jay wrote:Grasshopper - what is your objection to purchasing the mutual fund instead of an ETF? In Vanguard's case, the ETF and the MF are exactly the same holding, just different share classes.
Great question! I was under the impression the ETF was a lower fee model. Are they truly identical? If so, this is an easy solutio, Thank you!

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Re: Vanguard... Possible to auto invest in ETF's?

Post by lyrictulip » Sun Jul 02, 2017 6:28 pm

Great question! I was under the impression the ETF was a lower fee model. Are they truly identical? If so, this is an easy solutio, Thank you!
To be clear, the ETF and the Admiral Class of Vanguard funds are identical. Other brokerages don't have this model (Vanguard has patented it, as I understand it), and the ETF will be cheaper, even at Vanguard, if you aren't investing enough to qualify for Admiral Class shares. There may be other reasons to prefer ETFs or Mutual Funds (see https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds), but mutual funds definitely win with regard to your specific question about auto investment.

Vanguard has a calculator available that lets you calculate the cost difference between their ETF and its equivalent mutual fund over time: https://personal.vanguard.com/us/faces/ ... ontent.jsp

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Re: Vanguard... Possible to auto invest in ETF's?

Post by AlohaJoe » Sun Jul 02, 2017 10:02 pm

triceratop wrote:While I'm aware of that option I don't recommend it because market on open/close orders don't necessarily have much to do with the NAV. The famed ETF consultants paper makes this point repeatedly. I consider it too dangerous to use with any regularity.
Yep that's a good point. I assume the robo-advisors either have a team of humans doing purchases every day or have automated something similar to what's been suggested in this thread with checking out the current spread and doing market limit orders.

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Re: Vanguard... Possible to auto invest in ETF's?

Post by GreatOdinsRaven » Sun Jul 02, 2017 11:11 pm

For a while I was using Vanguard Vanguard FTSE All-World ex-US Small-Cap Index Fund (VFSVX) only available in Investor shares (no admiral share class). I did call Vanguard and ask them to convert to the ETF share class (VSS). They did and they said my Spec Id would follow the share class conversion. It did.

It's easy to call Vanguard and initiate the conversion once or twice a year. For most people the small ER difference between investor shares and ETF shares sustained over 6-12 months really won't be meaningful at all. I enjoyed the convenience of having automated ACH purchases of VFSVX over the hassle of having to remember and find time during the work day to buy VSS etf shares manually.

These days, though, I'm using DFA Intl SCV (DISVX) and doing automated purchases through an advisory account custodied with TD Ameritrade.
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Re: Vanguard... Possible to auto invest in ETF's?

Post by David Jay » Tue Jul 04, 2017 7:40 am

Grasshopper911 wrote:
David Jay wrote:Grasshopper - what is your objection to purchasing the mutual fund instead of an ETF? In Vanguard's case, the ETF and the MF are exactly the same holding, just different share classes.
Great question! I was under the impression the ETF was a lower fee model. Are they truly identical? If so, this is an easy solutio, Thank you!
I did not mean to imply that the fees were identical, but the holdings (what is in the fund) is identical. The fees for Admiral class are the same as the ETF but will typically be lower cost than the ETF because there is no bid/ask spread on an MF purchase.

The fees for Investor class MF are higher than ETF, but with no bid/ask spread, it will likely take a quarter or two for the fee cost to catch up with the bid/ask spread expense.

If you purchase Investor class (on a dollar basis) every week, and then convert them to ETF every 3-6 months, I think you would come out about even, or maybe even come out ahead.
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