Page 1 of 1

Downside to ETFs?

Posted: Mon Jan 20, 2020 5:42 pm
by Rinkadink
I just opened a Vanguard taxable account. I was planning to invest in the total stock market index fund and the total bond market index fund. But I see that the ETF versions of those two funds have slightly lower expense ratios and no minimum investment requirement. And they are commission free. So is there any reason why I shouldn't choose the ETFs over the index funds? Why doesn't everybody choose the ETFs? Thanks.

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 7:22 pm
by Silk McCue
Welcome to Bogleheads!

We have lots of threads on this subject. Please take time to read our Wiki.

https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

Cheers

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 7:49 pm
by nix4me
Yes - use ETF (VTI or VOO) in taxable. Do not buy bonds in taxable.

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 8:02 pm
by GrowthSeeker
nix4me wrote: Mon Jan 20, 2020 7:49 pm Yes - use ETF (VTI or VOO) in taxable. Do not buy bonds in taxable.
The reasoning for not buying bonds in a taxable account is that the "dividends" paid by bonds, bond funds, and bond ETFs are taxed as regular income according to your tax bracket whereas the dividends paid by stocks and stock funds/ETFs are usually "qualified" dividends and are taxed at a rate ( e.g. 15%) which is usually lower than the tax rate for regular income. It all depends on a person's specific income level and tax filing status.

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 8:10 pm
by MotoTrojan
Can’t do recurring automation investments. Can’t buy any dollar amount (both of those are fixed at M1 fwiw). Have to trade on open market with a premium or discount to NAV.

I only use ETFs myself.

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 9:29 pm
by KATNYC
We have ETFs in the HSA account (VOO) but only because TD Ameritrade charges a fee for Vanguard funds.
I'd prefer automated investing but Lively only offers TD for the HSA account.

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 9:37 pm
by augryphon
For me, the biggest downside is the ability/temptation to trade quickly and easily. I’m a buy and hold guy from waaaaaay back, but with EFTs, I am so tempted to trade based on the market. It doesn’t make sense, with funds I never, ever think about trading, except after thorough review. EFTs are gnawing on my brain :confused

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 9:47 pm
by unclescrooge
KATNYC wrote: Mon Jan 20, 2020 9:29 pm We have ETFs in the HSA account (VOO) but only because TD Ameritrade charges a fee for Vanguard funds.
I'd prefer automated investing but Lively only offers TD for the HSA account.
TD Ameritrade no longer charges a fee for ETFs. You must have missed all the excitement last year when every one and their mother made ETFs and stock trades free.

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 9:49 pm
by KATNYC
unclescrooge wrote: Mon Jan 20, 2020 9:47 pm
KATNYC wrote: Mon Jan 20, 2020 9:29 pm We have ETFs in the HSA account (VOO) but only because TD Ameritrade charges a fee for Vanguard funds.
I'd prefer automated investing but Lively only offers TD for the HSA account.
TD Ameritrade no longer charges a fee for ETFs. You must have missed all the excitement last year when every one and their mother made ETFs and stock trades free.
I am pretty sure that is what I typed. There are no fees for ETFs, which is why we buy them at TD.
We would prefer to buy VFIAX

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 9:49 pm
by CalculatedRisk
The op’s question isn’t stocks vs bonds, it is ETFs vs mutual funds. As the first response suggested, the wiki discusses this in detail, as do many other threads.

Re: Downside to ETFs?

Posted: Mon Jan 20, 2020 10:06 pm
by unclescrooge
KATNYC wrote: Mon Jan 20, 2020 9:49 pm
unclescrooge wrote: Mon Jan 20, 2020 9:47 pm
KATNYC wrote: Mon Jan 20, 2020 9:29 pm We have ETFs in the HSA account (VOO) but only because TD Ameritrade charges a fee for Vanguard funds.
I'd prefer automated investing but Lively only offers TD for the HSA account.
TD Ameritrade no longer charges a fee for ETFs. You must have missed all the excitement last year when every one and their mother made ETFs and stock trades free.
I am pretty sure that is what I typed. There are no fees for ETFs, which is why we buy them at TD.
We would prefer to buy VFIAX
Ah, your use of the word "funds" was ambiguous.
What do you think the F in ETF stands for? 😁

Re: Downside to ETFs?

Posted: Tue Jan 21, 2020 7:17 am
by aristotelian
Some people really, really prefer to buy with dollar amounts rather than shares. This means you always invest every dollar you want and that you get market price. It really is a personal preference thing. I see no investment reason to prefer mutual funds.

Re: Downside to ETFs?

Posted: Tue Jan 21, 2020 9:09 am
by UpperNwGuy
I invest only in mutual funds, not ETFs. Here's why:
1. I don't like having to choose between market orders, limit orders, market limit orders, etc.
2. I like to invest a dollar amount rather than buy a number of shares which leaves a residual amount uninvested.
3. I don't want to have to limit my investing to when the market is open.
4. I like to be able to do automatic investing.

Yes, I know that ETFs are cheaper, but not by a significant amount.

Yes, I know that ETFs allow me to switch brokerages, but I don't see myself ever doing that.

Re: Downside to ETFs?

Posted: Tue Jan 21, 2020 9:40 am
by missedit
another significant aspect to this discussion (of ETF vs Fund) is tax efficiency, something I learnt and often discussed here. I was shocked to to see the differences in net costs (including taxes) between FSKAX and ITOT. funds distribute capital gains (on which you have to pay taxes) and ETF mostly don't. I think the exception for this is the vanguard total stock fund

Re: Downside to ETFs?

Posted: Tue Jan 21, 2020 10:02 am
by Wiggums
augryphon wrote: Mon Jan 20, 2020 9:37 pm For me, the biggest downside is the ability/temptation to trade quickly and easily. I’m a buy and hold guy from waaaaaay back, but with EFTs, I am so tempted to trade based on the market. It doesn’t make sense, with funds I never, ever think about trading, except after thorough review. EFTs are gnawing on my brain :confused
Same here - buy and hold. My day trading days are over. It would be nice to see fractional share purchases allowed so purchases can be automated. Not sure if there is any downside to this.

Re: Downside to ETFs?

Posted: Tue Jan 21, 2020 10:22 am
by krafty81
I really see no good reason to purchase a mutual fund over an ETF with the same investing style.

Re: Downside to ETFs?

Posted: Tue Jan 21, 2020 10:25 am
by 1789
Wiggums wrote: Tue Jan 21, 2020 10:02 am
augryphon wrote: Mon Jan 20, 2020 9:37 pm For me, the biggest downside is the ability/temptation to trade quickly and easily. I’m a buy and hold guy from waaaaaay back, but with EFTs, I am so tempted to trade based on the market. It doesn’t make sense, with funds I never, ever think about trading, except after thorough review. EFTs are gnawing on my brain :confused
Same here - buy and hold. My day trading days are over. It would be nice to see fractional share purchases allowed so purchases can be automated. Not sure if there is any downside to this.
Thats why they say “ETFs trade like stocks” not a very good thing, imo.

Re: Downside to ETFs?

Posted: Wed Jan 22, 2020 10:31 am
by KATNYC
unclescrooge wrote: Mon Jan 20, 2020 10:06 pm
KATNYC wrote: Mon Jan 20, 2020 9:49 pm
unclescrooge wrote: Mon Jan 20, 2020 9:47 pm
KATNYC wrote: Mon Jan 20, 2020 9:29 pm We have ETFs in the HSA account (VOO) but only because TD Ameritrade charges a fee for Vanguard funds.
I'd prefer automated investing but Lively only offers TD for the HSA account.
TD Ameritrade no longer charges a fee for ETFs. You must have missed all the excitement last year when every one and their mother made ETFs and stock trades free.
I am pretty sure that is what I typed. There are no fees for ETFs, which is why we buy them at TD.
We would prefer to buy VFIAX
Ah, your use of the word "funds" was ambiguous.
What do you think the F in ETF stands for? 😁
Which is why I typed VOO which is distinctly different from VFIAX

Re: Downside to ETFs?

Posted: Wed Jan 22, 2020 10:53 am
by ChinchillaWhiplash
A lot of ETFs don’t hold quite the same stocks as a family’s corresponding MF. ETFs are fine. Just make sure they contain what you think they do. I like being able to set a limit order to perhaps grab a little discount during the day. Or you can just buy with a market order, just be careful of the buy sell price spread. For low volume ETFs this can be quite big.

Re: Downside to ETFs?

Posted: Wed Jan 22, 2020 1:32 pm
by 1789
augryphon wrote: Mon Jan 20, 2020 9:37 pm For me, the biggest downside is the ability/temptation to trade quickly and easily. I’m a buy and hold guy from waaaaaay back, but with EFTs, I am so tempted to trade based on the market. It doesn’t make sense, with funds I never, ever think about trading, except after thorough review. EFTs are gnawing on my brain :confused
It is an important disadvantage for some people, i agree. ETFs can work for people who doesn't tinker with their portfolios. Anyway, whoever does such things will lose regardless whether they hold ETFs or MFs, i think.