ETF versus MF

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Poppy1234
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ETF versus MF

Post by Poppy1234 » Tue May 19, 2020 3:40 am

What are some of the differences between ETFs and MFs? Vanguard has a lot of identical funds in both with comparable ER. I’ve tried doing some article research but most seem pretty rudimentary.

1. ETFs are traded like stock, any time of the day with no minimum investments except for the stock price. MFs are only traded at the end day and often have minimum investment amounts.
Last edited by Poppy1234 on Fri May 22, 2020 12:47 am, edited 1 time in total.

AlohaJoe
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Re: ETF versus MF

Post by AlohaJoe » Tue May 19, 2020 3:54 am


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nisiprius
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Re: ETF versus MF

Post by nisiprius » Tue May 19, 2020 5:50 am

People who are already familiar with buying and selling individual stocks usually prefer ETFs to mutual funds.

People who are not familiar with stock trading and are not very interested in investing generally often prefer mutual funds to ETFs.

I prefer mutual funds.

The big difference is the one you already know. ETFs give you the opportunity, and also impose on you the responsibility, to log in during the time when the stock market is open, and pick the exact moment to buy or sell the ETF as its price fluctuates up and down during the day. (It may be possible to buy or sell ETFs outside market hours but it is not advisable).

A mutual fund is "fire and forget." You place the order any time you like--for $1,234, perhaps--and at the end of the next trading day you are charged or credited with that exact number of dollars, based on the prices in of the stocks in the fund at the end of the day. (Just to be clear: if you place the order and the shares prices of the stocks in the ETF fall, you have still had bad luck. You will be receiving exactly $1,234 but the fund will need to sell more of your shares to do it).

People have personal tastes and argue forever about the minutiae of how they work and which is better. Don't listen to anybody who says it makes a huge amount of difference. It's like arguments over which is better, soda in bottles versus soda in cans.

With regard to how much money, depending on the exact details at a particular brokerage the fees may be different and that might be the most importance difference. Ditto the minimum purchase. When I had an account at Fidelity, it cost me $75 to buy a Vanguard mutual fund, $8 to buy a Vanguard ETF, and there was no fee to buy certain iShares ETFs. So on one occasion I chose in iShares ETF instead of a Vanguard mutual fund because they were otherwise equivalent and the fee was lower.
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Re: ETF versus MF

Post by nanameg » Tue May 19, 2020 6:08 am

I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?

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Re: ETF versus MF

Post by core4portfolio » Tue May 19, 2020 2:32 pm

with ETF - Automatic transfer and buying is not possible.
I prefer ETF though due to easily transferable if needed from fidelity.
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David Jay
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Re: ETF versus MF

Post by David Jay » Tue May 19, 2020 2:41 pm

Mutual funds are purchased in "dollars and cents" quantities. ETFs are purchased in "shares" quantities.
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Re: ETF versus MF

Post by sport » Tue May 19, 2020 2:57 pm

ETF transactions involve spreads, premiums, discounts, limit orders, market orders, etc. MF transactions are "buy" or "sell", much simpler.

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Re: ETF versus MF

Post by marcopolo » Tue May 19, 2020 3:04 pm

David Jay wrote:
Tue May 19, 2020 2:41 pm
Mutual funds are purchased in "dollars and cents" quantities. ETFs are purchased in "shares" quantities.
Not necessarily true anymore, at least as seen by the investor.

Fidelity now has dollar and cents based transactions for ETFs.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: ETF versus MF

Post by deltaneutral83 » Tue May 19, 2020 3:51 pm

sport wrote:
Tue May 19, 2020 2:57 pm
ETF transactions involve spreads, premiums, discounts, limit orders, market orders, etc. MF transactions are "buy" or "sell", much simpler.
For any major TSM/S&P/Tot Intl fund the spread is less than negligible. With HSA's becoming popular the last few years as far as investing, at some point, most will become familiar with buying ETF's anyhow? I certainly understand the overwhelming nature that trading intra day can represent to someone who has simply put their 401k/IRA on auto invest and never thinks twice about it. Tax loss harvesting is certainly the biggest weakness to ETF's when you take larger positions as the sell/buy if it takes longer than 30 seconds the market can move up on you by a non trivial amount during the accompanying volatility of a TLH environment.

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Re: ETF versus MF

Post by jhsu802701 » Tue May 19, 2020 4:12 pm

In my opinion, ETFs are better:
1. Lower expense ratios: This is important outside the Vanguard universe, where expense ratios are higher. This is especially important when you invest in foreign stocks, because foreign stock funds (especially emerging markets) have higher expense ratios.
2. Lower trading costs: Because ETFs trade like stocks, that means you can buy and sell them for free through Vanguard Brokerage, INCLUDING non-Vanguard ETFs. On the other hand, commission-free trading does NOT extend to all non-Vanguard mutual funds.
3. More convenience: Again, you can buy and sell any ETF through Vanguard Brokerage for free. Think of all of the effort required to set up an account with Fidelity, T. Rowe Price, Franklin-Templeton, and other mutual fund firms.
4. Lower minimum investment: In the ETF world, the minimum investment is just one share. In the mutual fund world, it could be thousands of dollars.
5. Greater variety of strategies: Because it costs the fund companies less to run an ETF than it does to run a mutual fund, ETFs don't have to be as big in order to be viable. This allows ETFs to have a greater variety of strategies than mutual funds. Try finding the mutual fund version of MOTI (international moat) or DGRE (emerging markets dividend growth).

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Re: ETF versus MF

Post by nix4me » Tue May 19, 2020 4:14 pm

jhsu802701 wrote:
Tue May 19, 2020 4:12 pm
In my opinion, ETFs are better:
1. Lower expense ratios: This is important outside the Vanguard universe, where expense ratios are higher. This is especially important when you invest in foreign stocks, because foreign stock funds (especially emerging markets) have higher expense ratios.
2. Lower trading costs: Because ETFs trade like stocks, that means you can buy and sell them for free through Vanguard Brokerage, INCLUDING non-Vanguard ETFs. On the other hand, commission-free trading does NOT extend to all non-Vanguard mutual funds.
3. More convenience: Again, you can buy and sell any ETF through Vanguard Brokerage for free. Think of all of the effort required to set up an account with Fidelity, T. Rowe Price, Franklin-Templeton, and other mutual fund firms.
4. Lower minimum investment: In the ETF world, the minimum investment is just one share. In the mutual fund world, it could be thousands of dollars.
5. Greater variety of strategies: Because it costs the fund companies less to run an ETF than it does to run a mutual fund, ETFs don't have to be as big in order to be viable. This allows ETFs to have a greater variety of strategies than mutual funds. Try finding the mutual fund version of MOTI (international moat) or DGRE (emerging markets dividend growth).
Agreed

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Re: ETF versus MF

Post by Robert20 » Tue May 19, 2020 4:25 pm

jhsu802701 wrote:
Tue May 19, 2020 4:12 pm
In my opinion, ETFs are better:
1. Lower expense ratios: This is important outside the Vanguard universe, where expense ratios are higher. This is especially important when you invest in foreign stocks, because foreign stock funds (especially emerging markets) have higher expense ratios.
2. Lower trading costs: Because ETFs trade like stocks, that means you can buy and sell them for free through Vanguard Brokerage, INCLUDING non-Vanguard ETFs. On the other hand, commission-free trading does NOT extend to all non-Vanguard mutual funds.
3. More convenience: Again, you can buy and sell any ETF through Vanguard Brokerage for free. Think of all of the effort required to set up an account with Fidelity, T. Rowe Price, Franklin-Templeton, and other mutual fund firms.
4. Lower minimum investment: In the ETF world, the minimum investment is just one share. In the mutual fund world, it could be thousands of dollars.
5. Greater variety of strategies: Because it costs the fund companies less to run an ETF than it does to run a mutual fund, ETFs don't have to be as big in order to be viable. This allows ETFs to have a greater variety of strategies than mutual funds. Try finding the mutual fund version of MOTI (international moat) or DGRE (emerging markets dividend growth).
Very true except minor change to #4

4. Now fractional shares available for ETFs also. We can buy any ETF as low as $1.

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Re: ETF versus MF

Post by Rwsawbones » Tue May 19, 2020 6:46 pm

For long term investors reinvestment of dividends and capital gains as we as small recurring investment automatically from one’s checking account are easier with mutual funds

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Re: ETF versus MF

Post by abuss368 » Tue May 19, 2020 6:55 pm

ETFs require that whole shares be purchased. Mutual Funds can be purchased with dollar amounts (i.e. whole shares are not needed to be purchased).

I will probably transition our accounts soon at Vanguard from the mutual fund platform to the brokerage platform. You can still hold the individual mutual funds in the brokerage account.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: ETF versus MF

Post by Doctor Rhythm » Tue May 19, 2020 6:55 pm

Trading ETF is easier, faster, and less restricted than with mutual funds. The downside is that trading ETF is easier, faster, and less restricted than with mutual funds.

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Re: ETF versus MF

Post by TropikThunder » Tue May 19, 2020 7:10 pm

abuss368 wrote:
Tue May 19, 2020 6:55 pm
ETFs require that whole shares be purchased.
Not any more, there have been numerous threads about brokerages with fractional share ETF purchases.

Schwab:
viewtopic.php?t=292814

Fidelity:
viewtopic.php?t=302147

viewtopic.php?t=302283

Also, my son-in-law's employer uses ShareBuilder401k as their 401k provider, and their investment options are entirely ETF's. They use pooled purchasing and fractional shares so that every participant who buys a particular ETF via payroll deduction (with a dollar amount starting point) gets the same share price on the same day. They (plus Ascensus and Sungard) have been doing this for over 10 years.
https://seekingalpha.com/article/206638 ... -with-etfs
Last edited by TropikThunder on Tue May 19, 2020 7:23 pm, edited 2 times in total.

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Re: ETF versus MF

Post by retired@50 » Tue May 19, 2020 7:18 pm

jhsu802701 wrote:
Tue May 19, 2020 4:12 pm
In my opinion, ETFs are better:
...
4. Lower minimum investment: In the ETF world, the minimum investment is just one share. In the mutual fund world, it could be thousands of dollars.
The initial investment in a mutual fund could be thousands of dollars, but subsequent investments can usually be just $1 or more.

Regards,
This is one person's opinion. Nothing more.

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Re: ETF versus MF

Post by TropikThunder » Tue May 19, 2020 7:25 pm

nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
If the PAS Advisor is doing the transacting on your behalf, why does it matter if it's mutual funds or ETF's?

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Re: ETF versus MF

Post by abuss368 » Tue May 19, 2020 7:26 pm

TropikThunder wrote:
Tue May 19, 2020 7:10 pm
abuss368 wrote:
Tue May 19, 2020 6:55 pm
ETFs require that whole shares be purchased.
Not any more, there have been numerous threads about brokerages with fractional share ETF purchases.

Schwab:
viewtopic.php?t=292814

Fidelity:
viewtopic.php?t=302147

viewtopic.php?t=302283

Also, my son-in-law's employer uses ShareBuilder401k as their 401k provider, and their investment options are entirely ETF's. They use pooled purchasing and fractional shares so that every participant who buys a particular ETF via payroll deduction (with a dollar amount starting point) gets the same share price on the same day. They (plus Ascensus and Sungard) have been doing this for over 10 years.
https://seekingalpha.com/article/206638 ... -with-etfs
Thanks. Actually I was referring to Vanguard which I do not believe they allow for fractional shares to be purchased with an ETF correct?
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Re: ETF versus MF

Post by abuss368 » Tue May 19, 2020 7:28 pm

nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
This is my understanding as well. I have a family member in the process of moving to Vanguard PAS.

Vanguard PAS is currently helping them to:

1) Transition form the mutual fund platform to the brokerage account platform

2) Transition form mutual funds to ETFs.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: ETF versus MF

Post by JoMoney » Tue May 19, 2020 7:31 pm

There are bid-ask spread costs in ETF transactions and while it's expected that authorized participants will arbitrage any major disparity to keep the ETF trading near the Net-Asset-Value of the underlying funds holdings, there is no guarantee how about how efficiently that works or how wide the disparity between ETF market price and the underlying assets can get.
There have been concerns about the liquidity of some ETF's of small esoteric indexes and some bond ETFs that seem to trade with an expectation of greater liquidity then what actually exists in the underlying securities.
ETF's are completely reliant on a functioning stock market to trade on, while that doesn't present any unique situation for stocks, it might make a difference for bonds. If the stock market was closed from some disaster, you couldn't sell a bond ETF traded on the stock market, but since bonds operate differently, a bond mutual fund might still be able to be bought/sold -- when the stock market closed for about a week after the events of Sep-11th, 2001 mutual funds were frozen too, but some money market and bond funds allowed transactions again even before the stock market reopened.
viewtopic.php?f=10&t=313331
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Re: ETF versus MF

Post by nanameg » Tue May 19, 2020 7:59 pm

TropikThunder wrote:
Tue May 19, 2020 7:25 pm
nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
If the PAS Advisor is doing the transacting on your behalf, why does it matter if it's mutual funds or ETF's?
I don’t intend to use the PAS advisor forever ...maybe not at all. I guess ETF’s are cheaper and it is just the way things are going. I don’t get it though and I’d like to understand why the industry pushes ETF’s over mutual funds. What’s in it for them?

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Re: ETF versus MF

Post by sport » Tue May 19, 2020 8:42 pm

TropikThunder wrote:
Tue May 19, 2020 7:25 pm
nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
If the PAS Advisor is doing the transacting on your behalf, why does it matter if it's mutual funds or ETF's?
It matters if the client wants to discontinue the PAS service and the client would rather have mutual funds. Changing back from ETFs to mutual funds is a taxable transaction.

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Re: ETF versus MF

Post by Nate79 » Tue May 19, 2020 9:17 pm

nanameg wrote:
Tue May 19, 2020 7:59 pm
TropikThunder wrote:
Tue May 19, 2020 7:25 pm
nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
If the PAS Advisor is doing the transacting on your behalf, why does it matter if it's mutual funds or ETF's?
I don’t intend to use the PAS advisor forever ...maybe not at all. I guess ETF’s are cheaper and it is just the way things are going. I don’t get it though and I’d like to understand why the industry pushes ETF’s over mutual funds. What’s in it for them?
Cost reduction for Vanguard.

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Re: ETF versus MF

Post by abuss368 » Tue May 19, 2020 9:25 pm

Nate79 wrote:
Tue May 19, 2020 9:17 pm
nanameg wrote:
Tue May 19, 2020 7:59 pm
TropikThunder wrote:
Tue May 19, 2020 7:25 pm
nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
If the PAS Advisor is doing the transacting on your behalf, why does it matter if it's mutual funds or ETF's?
I don’t intend to use the PAS advisor forever ...maybe not at all. I guess ETF’s are cheaper and it is just the way things are going. I don’t get it though and I’d like to understand why the industry pushes ETF’s over mutual funds. What’s in it for them?
Cost reduction for Vanguard.
That is the only item I can think of. What else would be the motivating reason? Perhaps having ETFs in real time data?
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: ETF versus MF

Post by krafty81 » Tue May 19, 2020 10:22 pm

I will never buy a MF again, unless there is something I cannot get in an ETF. I like the flexibility of ETFs, especially with crazy market swings. When it is time to buy, I want it to happen immediately. When I need to sell, I like the same.

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Re: ETF versus MF

Post by annu » Tue May 19, 2020 11:22 pm

nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
Why is that? So they make more money on etf buy and sell ?

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Re: ETF versus MF

Post by TropikThunder » Tue May 19, 2020 11:58 pm

annu wrote:
Tue May 19, 2020 11:22 pm
nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
Why is that? So they make more money on etf buy and sell ?
They don't make any money at all off "ETF buy and sell"; ETF trades are commission-free.

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Re: ETF versus MF

Post by annu » Wed May 20, 2020 12:02 am

TropikThunder wrote:
Tue May 19, 2020 11:58 pm
annu wrote:
Tue May 19, 2020 11:22 pm
nanameg wrote:
Tue May 19, 2020 6:08 am
I would prefer to keep mutual funds as well but that’s not permissible if you use the PAS at Vanguard. They are moving everyone to the brokerage platform AND ETF’s. I’m unsettled about that. I’d like to keep my mutual funds and don’t want to be forced into ETF’s. I understand and accept they want to change everyone to a “ newer “ platform but why can’t clients of PAS keep their mutual funds?
Why is that? So they make more money on etf buy and sell ?
They don't make any money at all off "ETF buy and sell"; ETF trades are commission-free.
I am sorry just confused, why will they push for etf? Was wondering maybe nav or something I am bot familiar to ends up as more useful for the brokerage vs MF, but more I think, mf is probably less activity.....

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Poppy1234
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Re: ETF versus MF

Post by Poppy1234 » Fri May 22, 2020 12:32 am

Are dividends and capital gains automatically reinvested for ETFs like they are for mutual funds?

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