VTI vs VTSMX - which one should one buy?

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smilingbudha
Posts: 2
Joined: Sat Oct 04, 2008 11:01 pm

VTI vs VTSMX - which one should one buy?

Post by smilingbudha » Fri Oct 24, 2008 9:42 am

Hi Gurus,

I have been mostly investing in index mutual funds and wanted to find out which is better - an index mutual fund or an ETF. I understand that the costs for ETF may be higher if one buys it on a regular basis and investing in a mutual fund would help in keeping the costs down in such a situation. However, if you are plonking one big sum is an ETF better in that case.

I was also a bit intrigued to find that the expense costs on VTI(Total market ETF) is around 0.07% while the one on VTSMX(Total market index mutual fund) is around 0.15%. That seems to be a big difference considering that both these are track the same index. Is it usual to have the ETF expense ratio much lower than the corresponding mutual fund. Would that suggest that one is always better off buing ETFs when doing large purchases?

Also VTI trades at a premium to its assets and the price is not determined by its assets but more by the supply and demand for VTI in the market. I presume that under normal conditions this would reflect the value of the assets tracked by the index (though with a small premium or discount), but under the current market conditions where panic prevails is it safer to invest in VTSMX as opposed to VTI considering that the formers value is truely asset backed as opposed to being determined by market conditions.

Any wisdom on these issues would really be appreciated...

Thanks

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PiperWarrior
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Post by PiperWarrior » Fri Oct 24, 2008 9:48 am

Welcome to the forum!

Well, if your purchase exceeds $100K, you might also consider VTSAX, the Admiral Shares, so that makes the ETF v.s. mutual fund muddy (or muddier).

To see if ETFs make sense in your case, you might want to play with Calculate and compare costs for Vanguard ETFs and mutual funds. You might be interested in reading To ETF or Not to ETF.

Topic Author
smilingbudha
Posts: 2
Joined: Sat Oct 04, 2008 11:01 pm

Post by smilingbudha » Fri Oct 24, 2008 12:06 pm

Hi PiperWarrior,

Thanks for some very informative pointers. This forum is awesome!!

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