3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

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jjmaddison
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3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by jjmaddison » Sat Oct 21, 2017 3:46 pm

Hi,

I'm considering a 3-fund portfolio from the Bogleheads wiki: https://www.bogleheads.org/wiki/Three-fund_portfolio

This forum seems to recommend Vanguard.
But when I compare current State Street SPDRs (THRK/CWI/BNDS) expense ratio against Vanguard (VTI/VXUS/BND) - every SPDR ETF has a bit lower ER.
Right now I pay the same commission for both.

Is there anything that makes Vanguard more preferable here, or just go SPDR?

P.S. I apologize if my question is really newbish and the answer is obvious.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by pkcrafter » Sat Oct 21, 2017 5:35 pm

VXUS has an ER of 0.11% CWI ER is 0.3%

VTI ER is 0.04% THRX (now SPTM) 0.03%

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by jhfenton » Sat Oct 21, 2017 5:49 pm

if you use the SPDR Portfolio funds, you'll want to swap/split VXUS into SPDW (international developed) at 4 bp and SPEM (emerging markets) at 11 bp. Both are slightly cheaper at the top-line than VEA (7 bp) and VWO (14 bp).

Despite the very slight expense advantage for the SPDR funds, I still prefer the Vanguard funds because (1) assets and liquidity are still better for the Vanguard funds, though I expect the SPDR funds to grow steadily; (2) the Vanguard funds have long track records for tracking their indices closely; (3) most of the SPDR funds are using index sampling instead of full replication (partly a result of asset size and partly a result of Vanguard's dual-ETF/mutual fund structure); (4) Vanguard pays 100% of security-lending revenue back to the fund compared to 85% for the SSGA funds, invisibly making up the difference in ER; and (5) I trust Vanguard to always be within a bp or three from the cheapest.

The preference is very slight in a tax-advantaged account where I would be free to swap if anything changed for the worse in a SPDR fund. The preference is fairly solid in a taxable account.

I have, in fact, just put some money in SPEM in my HSA newly-transferred this week to Lively+TD Ameritrade. I have a lot in VEMAX/VWO in our Vanguard accounts.

Note: There is no SPDR Portfolio equivalent for VSS (Vanguard FTSE all-World ex-US Small Cap), my largest equity holding, nor for VSIAX/VBR (Vanguard Small Cap Value), my second largest equity holding.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by TropikThunder » Sat Oct 21, 2017 5:55 pm

jjmaddison wrote:
Sat Oct 21, 2017 3:46 pm
Hi,

I'm considering a 3-fund portfolio from the Bogleheads wiki: https://www.bogleheads.org/wiki/Three-fund_portfolio

This forum seems to recommend Vanguard.
But when I compare current State Street SPDRs (THRK/CWI/BNDS) expense ratio against Vanguard (VTI/VXUS/BND) - every SPDR ETF has a bit lower ER.
Right now I pay the same commission for both.

Is there anything that makes Vanguard more preferable here, or just go SPDR?

P.S. I apologize if my question is really newbish and the answer is obvious.
The SPDR ER's are new, they were higher than the corresponding Vanguard ETFs until earlier this week. For example, SPTM was 0.10% (under the old name THRK) and is now 0.03%. Once the ER's are that low, other considerations take precedence, such as trading costs and the level of customer service. For perspective, the ER difference between VTI (0.04%) and SPTM (0.03%) is $10 a year (edit: on a $100,000 balance). What brokerage do you use for purchase? You say you pay the same commission for both but TD Ameritrade is removing the Vanguard ETFs from their commission-free list. I wouldn't pay $6.95 per trade just to stay with Vanguard if I could get the SPDR equivalents for no fee.
Last edited by TropikThunder on Sat Oct 21, 2017 6:21 pm, edited 1 time in total.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by nisiprius » Sat Oct 21, 2017 6:16 pm

The answer is straightforward but not obvious. Speaking for myself... the difference in cost is so tiny that for me it doesn't outweigh my slight, irrational, "fan" preference for Vanguard.

The trickiest thing here, by the way, is that I think you goofed on your ticker symbols and expense ratios. For the international stock ETF, the cheaper-than-Vanguard ETF isn't CWI, it's SPDW which doesn't have emerging markets. CWI does have emerging markets but it's more expensive than Vanguard. So in your case you have to ask "which is more important to me, lower ERs or inclusion of emerging markets?"

1) Actually do the math on the expense ratios. Twenty years ago, typical investors were buying actively managed funds with expense ratios of, say, 1.30% and Vanguard investors were buying index funds with expense ratios of 0.30%. That's a huge difference and it really matters. John C. Bogle and Vanguard spread the gospel about low costs. Some Bogleheads take a purist attitude and feel that even the tiniest cost difference matters. I don't.

But when I compare current State Street SPDRs (THRK/CWI/BNDS) expense ratio against Vanguard (VTI/VXUS/BND), well--to begin with, I don't see that "every SPDR has a lower ER." I think CWI is directly comparable to VXUS but it has a considerably higher expense ratio, 0.30% versus 0.11%.

Whoa, those other ticker symbols are wrong. I'm thinking you might have meant these ETFs from State Street's "Ultra-Low Cost SPDR Portfolio ETFs:"

SPTM, SPDR Portfolio Total Stock Market ETF
SPDW SPDR Portfolio World ex-US ETF--not comparable to VXUS as it does not include emerging markets but we'll use it.
SPAB, SPDR® Portfolio Aggregate Bond ETF

$40,000 U.S. stock: SPTM, 0.03% = $12; VTI, 0.04% = $16;
$20,000 international stock SPDW, 0.04% = $8; VXUS, 0.11% = $22;
$40,000 bonds: SPAB, 0.04% = $16; BND, 0.05% = $20.

So, overall, we are paying $58/year in expenses for the Vanguard ETFs, $36/year for the SPDRs. That's a difference of $22 a year on a $100,000 portfolio. Is that important? That's something you have to decide for yourself. Remember, the stock market typically fluctuates 1% or more every day, so you're talking about a $22 average difference at the end of the year between numbers that could be jumping up and down $1,000 day to day.

If we use CWI instead of SPDW, for more of an apples-to-apples comparison, the expenses change to $12 + $60 + $16 = $88 for the SPDRs, making the SPDRs $30/year more expensive.
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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by nisiprius » Sat Oct 21, 2017 6:23 pm

P.S. Vanguard's competitors--well, Schwab and State Street, anyway--have clearly decided to undercut Vanguard by one basis point. Sure, arguably that makes them "better than Vanguard" in that regard, but it's very reminiscent of the cigarette maker, during the era when 100-mm-long cigarettes were a fad, who came up with a 101-mm cigarette. Yep. It's longer. Can't argue.
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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by furwut » Sun Oct 22, 2017 4:26 pm

Vanguard has the experience, economy of scale and ethos to offer low cost index funds. If someone is undercutting them I naturally wonder how they are able to do so and how long might they remain committed to operating at, possibly, a loss.

Once State Street has demonstrated 5 years of out competing Vanguard I’ll give them a look.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by Burke45 » Sun Oct 22, 2017 5:05 pm

jjmaddison wrote:
Sat Oct 21, 2017 3:46 pm
Hi,

I'm considering a 3-fund portfolio from the Bogleheads wiki: https://www.bogleheads.org/wiki/Three-fund_portfolio

This forum seems to recommend Vanguard.
But when I compare current State Street SPDRs (THRK/CWI/BNDS) expense ratio against Vanguard (VTI/VXUS/BND) - every SPDR ETF has a bit lower ER.
Right now I pay the same commission for both.

Is there anything that makes Vanguard more preferable here, or just go SPDR?

P.S. I apologize if my question is really newbish and the answer is obvious.
Thanks for posting this. Now that TD dumped Vanguard, I've been having the same question over the past few days. Does Vanguard allow folks to buy SPDR indexs? If they do, I'm seriously considering transferring over. If I invest in SPDR in TD I don't want to worry about getting that index dumped in say 15 years with me holding the bag.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by adamthesmythe » Sun Oct 22, 2017 7:57 pm

Once the expense ratio gets below a tenth of a percent or so it's worth spending your time thinking about other things.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by lack_ey » Sun Oct 22, 2017 8:17 pm

Burke45 wrote:
Sun Oct 22, 2017 5:05 pm
Thanks for posting this. Now that TD dumped Vanguard, I've been having the same question over the past few days. Does Vanguard allow folks to buy SPDR indexs? If they do, I'm seriously considering transferring over. If I invest in SPDR in TD I don't want to worry about getting that index dumped in say 15 years with me holding the bag.
I think I'm misunderstanding you, or there are some misconceptions here.

You can trade ETFs, like other listed stocks, at whichever brokerages you please. If you're asking about a brokerage account at Vanguard Brokerage Services, sure, you can buy SPDR ETFs. You can't buy indexes directly, but you can buy index funds (in mutual fund or ETF format, including the low-cost SPDR index ETFs) as anywhere else. You just have to pay a commission, as for any other ETF or stock that doesn't have some kind of special arrangement. Vanguard ETFs at Vanguard Brokerage Services are commission free.

It used to be that TD Ameritrade had a number of ETFs from Vanguard, iShares, and some other companies—not every offering but several dozen overall—available commission free. They recently changed are about to change [edit: correction?] the list, removing the Vanguard ETFs, and adding a whole lot of other ones. You can still trade the Vanguard ETFs as before, just with commissions charged.

I don't see why you would intentionally want to pay commissions now by using SPDR ETFs at Vanguard unless you prefer their brokerage over the others, and really like these over the Vanguard and other alternatives.

Some platforms give you free trades as a sign-up bonus or for accounts over a certain amount. Qualifying for Bank of America/Merrill Edge Preferred Rewards (min $20k) gives you 30+ free trades a month for whichever stocks/ETFs you want. No worrying about the list changing, though obviously this benefit could be changed in the future.
Last edited by lack_ey on Sun Oct 22, 2017 8:38 pm, edited 1 time in total.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by student » Sun Oct 22, 2017 8:20 pm

Burke45 wrote:
Sun Oct 22, 2017 5:05 pm
Thanks for posting this. Now that TD dumped Vanguard, I've been having the same question over the past few days.
Are you referring to TD Ameritrade? I don't understand. I just checked its website, it is still free to trade 32 Vanguard ETF's.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by avalpert » Sun Oct 22, 2017 8:21 pm

student wrote:
Sun Oct 22, 2017 8:20 pm
Burke45 wrote:
Sun Oct 22, 2017 5:05 pm
Thanks for posting this. Now that TD dumped Vanguard, I've been having the same question over the past few days.
Are you referring to TD Ameritrade? I don't understand. I just checked its website, it is still free to trade 32 Vanguard ETF's.
They will be coming off of the commission-free list on November 20th.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by student » Sun Oct 22, 2017 8:26 pm

avalpert wrote:
Sun Oct 22, 2017 8:21 pm
student wrote:
Sun Oct 22, 2017 8:20 pm
Burke45 wrote:
Sun Oct 22, 2017 5:05 pm
Thanks for posting this. Now that TD dumped Vanguard, I've been having the same question over the past few days.
Are you referring to TD Ameritrade? I don't understand. I just checked its website, it is still free to trade 32 Vanguard ETF's.
They will be coming off of the commission-free list on November 20th.
Thanks for the info. I guess I have to use SPTM rather that VTI.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by Burke45 » Mon Oct 23, 2017 3:14 am

lack_ey wrote:
Sun Oct 22, 2017 8:17 pm
Burke45 wrote:
Sun Oct 22, 2017 5:05 pm
Thanks for posting this. Now that TD dumped Vanguard, I've been having the same question over the past few days. Does Vanguard allow folks to buy SPDR indexs? If they do, I'm seriously considering transferring over. If I invest in SPDR in TD I don't want to worry about getting that index dumped in say 15 years with me holding the bag.
I think I'm misunderstanding you, or there are some misconceptions here.

You can trade ETFs, like other listed stocks, at whichever brokerages you please. If you're asking about a brokerage account at Vanguard Brokerage Services, sure, you can buy SPDR ETFs. You can't buy indexes directly, but you can buy index funds (in mutual fund or ETF format, including the low-cost SPDR index ETFs) as anywhere else. You just have to pay a commission, as for any other ETF or stock that doesn't have some kind of special arrangement. Vanguard ETFs at Vanguard Brokerage Services are commission free.

It used to be that TD Ameritrade had a number of ETFs from Vanguard, iShares, and some other companies—not every offering but several dozen overall—available commission free. They recently changed are about to change [edit: correction?] the list, removing the Vanguard ETFs, and adding a whole lot of other ones. You can still trade the Vanguard ETFs as before, just with commissions charged.

I don't see why you would intentionally want to pay commissions now by using SPDR ETFs at Vanguard unless you prefer their brokerage over the others, and really like these over the Vanguard and other alternatives.

Some platforms give you free trades as a sign-up bonus or for accounts over a certain amount. Qualifying for Bank of America/Merrill Edge Preferred Rewards (min $20k) gives you 30+ free trades a month for whichever stocks/ETFs you want. No worrying about the list changing, though obviously this benefit could be changed in the future.
Sorry, I think I did have some misunderstandings. I guess with all the talk about people dumping Ameritrade, I got under the impression that you might not even be able to buy Vanguard ETFs in general.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by stlutz » Fri Oct 27, 2017 6:31 pm

Interesting article comparing the total cost of funds between VG, iShares, and State Street.

http://www.etf.com/sections/features-an ... nopaging=1

My summary of the article: They are all very close to each other.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by motorcyclesarecool » Fri Oct 27, 2017 7:53 pm

My question is: how do I avoid being burned by the bigger bid-ask spread of a thinly traded index ETF? That carries a cost, too.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by grabiner » Fri Oct 27, 2017 9:08 pm

motorcyclesarecool wrote:
Fri Oct 27, 2017 7:53 pm
My question is: how do I avoid being burned by the bigger bid-ask spread of a thinly traded index ETF? That carries a cost, too.
The most important protection is to hold for the long term. If you hold an ETF for 20 years, and lose 0.2% to the spread, that is only 0.01% per year.

You can also avoid some of the spread issues by patience. Watch the spread, and place your order when the spread is relatively small. And when you do buy, use a marketable limit order (order to buy at the ask) rather than a market order, so that you don't pay an unusually large spread if the order you were planning to accept is withdrawn before your order is placed.
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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by motorcyclesarecool » Sat Oct 28, 2017 4:55 am

grabiner wrote:
Fri Oct 27, 2017 9:08 pm
[....]You can also avoid some of the spread issues by patience. Watch the spread, and place your order when the spread is relatively small. And when you do buy, use a marketable limit order (order to buy at the ask) rather than a market order, so that you don't pay an unusually large spread if the order you were planning to accept is withdrawn before your order is placed.
Aren’t limit orders also subject to spread? A penny of spread on VTI matters far less than the huge spreads I’ve been seeing on SPTM (Is it wrong that I n my mental reading voice I say sputum?) lately. Even if I set a limit order, I’m still likely to be hosed, because the market fluctuated to hit my price, but the spread is still in play. Someone is arbitraging handsomely off of me if I buy SPTM. If buy-and-hold covers the ills of a big bid-ask spread, why not pay a big front end commission and average that out over time? I feel there should be some bonus for “early adopters” of a newish, small ETF, but I only see downside. Am I being overly pessimistic?
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by Earl Lemongrab » Sat Oct 28, 2017 11:58 am

motorcyclesarecool wrote:
Sat Oct 28, 2017 4:55 am
Aren’t limit orders also subject to spread? A penny of spread on VTI matters far less than the huge spreads I’ve been seeing on SPTM (Is it wrong that I n my mental reading voice I say sputum?) lately.[/quote]
Are you sure you have accurate information? People were reporting in the big thread on TDA's change to the commission-free list that the spread was pretty much the same. Remember that only the spread during trading hours matters. Checking it off hours doesn't tell you anything.
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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by lack_ey » Sat Oct 28, 2017 1:26 pm

For what it's worth, a lot of these funds are not newish. They're just relatively low AUM and volume because they didn't gather much assets under the old ERs.

In any case, in a lot of these categories the iShares, Schwab, or Vanguard products are probably still better than what State Street is offering with the revamped low-cost SPDRs series. Mostly I think it's the non-total-bond fixed income products that are now most relevant if you're looking for different maturity ranges than the Vanguard funds.

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by grabiner » Sat Oct 28, 2017 6:57 pm

motorcyclesarecool wrote:
Sat Oct 28, 2017 4:55 am
grabiner wrote:
Fri Oct 27, 2017 9:08 pm
[....]You can also avoid some of the spread issues by patience. Watch the spread, and place your order when the spread is relatively small. And when you do buy, use a marketable limit order (order to buy at the ask) rather than a market order, so that you don't pay an unusually large spread if the order you were planning to accept is withdrawn before your order is placed.
Aren’t limit orders also subject to spread? A penny of spread on VTI matters far less than the huge spreads I’ve been seeing on SPTM (Is it wrong that I n my mental reading voice I say sputum?) lately. Even if I set a limit order, I’m still likely to be hosed, because the market fluctuated to hit my price, but the spread is still in play.
Limit orders are subject to spread, but only the spread you see. If an ETF reports a spread of 50.48-50.52, and you place an order to buy at 50.52, you can't lose more than the four cents (and, in practice, you expect to lose only half). If the 50.52 order is taken by someone else so that the spread is 50.48-50.68, you can withdraw the limit order which was not accepted, and wait until the spread narrows again. If you had placed a market order, you would have bought at 50.68, losing an extra 16 cents.
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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by TropikThunder » Sat Oct 28, 2017 7:27 pm

Earl Lemongrab wrote:
Sat Oct 28, 2017 11:58 am
motorcyclesarecool wrote:
Sat Oct 28, 2017 4:55 am
Aren’t limit orders also subject to spread? A penny of spread on VTI matters far less than the huge spreads I’ve been seeing on SPTM (Is it wrong that I n my mental reading voice I say sputum?) lately.
Are you sure you have accurate information? People were reporting in the big thread on TDA's change to the commission-free list that the spread was pretty much the same. Remember that only the spread during trading hours matters. Checking it off hours doesn't tell you anything.
Yeah, I think the bid-ask concern is quite overblown. I was watching SPTM on Monday (Oct 23rd) since I was buying some and the spread the whole day (at least as shown on the Level II info on the TDA mobile app) was never more than 2 cents, and most of the time was only 1 cent. Plus there were several times where the entire visible Limit Order Book had the same price (i.e., all dozen or so blocks listed had Bid prices of $31.87 and Ask prices of $31.88 so there was plenty of depth). Plus the trading volume has gone way up in the past week, likely a result at least in part of the TDA change, and I imagine it will continue to improve. I'll post a pic of the Level II on Monday if I remember. :P

I'll acknowledge that $0.01/$32.00 for SPTM is a bigger percentage than $0.01/$132 for VTI. But the break-even at $6.95 per trade is a ~$30,000 trade:
  • $30,000 is ~225 shares of VTI at Friday's close, with $2.25 lost to the spread + $6.95 commission = $9.20
  • $30,000 is ~935 shares of SPTM at Friday's close, with $9.35 lost to the spread = 0 commission = $9.35
So unless you're routinely trading $30,000 blocks, the trading cost will be cheaper for SPTM because of the commission. And if anyone knows how to get a spread below 1 penny, I'm all ears (except trading at the cross livesoft, that doesn't count)

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by jmndu99 » Sat Oct 28, 2017 8:57 pm

What/if any are the differences in turnover rates between the Vanguard and State Street etf's you are comparing?

Turnover is a cost too and needs to be looked at.

Please let us know

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by TropikThunder » Sat Oct 28, 2017 9:31 pm

jmndu99 wrote:
Sat Oct 28, 2017 8:57 pm
What/if any are the differences in turnover rates between the Vanguard and State Street etf's you are comparing?

Turnover is a cost too and needs to be looked at.

Please let us know
For VTI, the turnover is 4%, which is extremely low, but intuitively makes sense for a Total Market Fund which really only curn at the microcap and lower level.
http://financials.morningstar.com/etfun ... html?t=VTI

For SPTM, turnover is slightly lower at 3%, which also intuitively makes sense since the Russell 3000 only readjusts once a year (absent mergers and acquisitions). This may or may not change once SPTM transitions to the new proprietary SSgA Total Market Index in November.
http://financials.morningstar.com/etfun ... tml?t=SPTM

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Re: 3-fund of SPDRs is better than of Vanguard ETF (lower ER)?

Post by jmndu99 » Sun Oct 29, 2017 4:54 pm

Per TropikThunder's post above, this stands out most.: "For SPTM, turnover is slightly lower at 3%, which also intuitively makes sense since the Russell 3000 only readjusts once a year (absent mergers and acquisitions). This may or may not change once SPTM transitions to the new proprietary SSgA Total Market Index in November.
http://financials.morningstar.com/etfun ... tml?t=SPTM"

The part about changing to the new proprietary SSgA total stock market index.

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