Why Vanguard Seems to Be Pushing Us Towards ETFs?

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ronin
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Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by ronin » Sun May 24, 2020 12:49 pm

I'm curious to get perspective from others on what appears to be a gradual shift in Vanguard's preference for its customers to use their ETFs in lieu of their mutual funds. They prominently tout how easy it is to convert from MFs to ETFs. I'm hearing that their PAS will eventually no longer support MFs, requiring participants to use ETFs. What's VG's motive? Seems like doig so only makes it easier for customers to easily move their assets to another brokerage platform (competitor) which could be ok for VG or perhaps even part of a longer term plan to phase out direct retail relationships. This is purely my speculation however.

This is is not intended to argue the merits of MFs vs ETFs, nor is it intended to argue the merits of Vanguard's legacy MF platform versus their brokerage platform as both of those topics have been discussed at length in other threads.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by retired@50 » Sun May 24, 2020 12:51 pm

Maybe they think that helping clients save 1 or 2 basis points on trillions of dollars is smart?

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

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anon_investor
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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by anon_investor » Sun May 24, 2020 12:55 pm

ETFs are cheaper than mutual funds for Vanguard to administer, which is why the ER is lower for the ETF share class vs the mutual fund share class of the same index funds.

stan1
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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by stan1 » Sun May 24, 2020 12:58 pm

ETFs are cheaper for Vanguard to operate in part because retail customer buy/sells are logical ledger transactions inside computer systems. The ETF authorized participants who actually own the creation units do not need to go out and buy/sell every time a retail customer does a transaction.

With a mutual fund Vanguard has to go out at the end of every business day and make buy/sell transactions to cover customer activity. Yes, they surely have some flexibility on this and you'll notice that Vanguard mutual funds often hold the equivalent ETF to help them keep cash fully invested and meet liquidity requirements.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by alex_686 » Sun May 24, 2020 1:00 pm

I have worked in both brokerage and mutual fund operations. From a operations prospective, ETFs are so much easier and cheaper to run in a customer's account that mutual funds.

ETFs work like any other exchange traded stock. It is all beautifully standardized.

Every mutual fund family has a slightly different network connection. Who does tax reporting? Who holds the books and records. Who do you call for trade breaks, trade exceptions, and reconciliation issues?

I liken the mutual fund/ETF divided to manual vs. automatic transmissions in cars. I love manual transmissions. Manufacturers would prefer to design, test, build, train mechanics, and manufacture spare parts for a single transmissions. It is overall cheaper for manufactures just to offer the more expensive automatic transmission.

Mutual funds and manual transmissions are going to slowly die away. While you might like them, the cost structure is going to push the manufactures away.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by bondsr4me » Sun May 24, 2020 1:08 pm

I prefer ETF's.
When I buy or sell a security, I want to know the price.
This works for me just fine.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Ricola » Sun May 24, 2020 1:42 pm

alex_686 wrote:
Sun May 24, 2020 1:00 pm
I have worked in both brokerage and mutual fund operations. From a operations prospective, ETFs are so much easier and cheaper to run in a customer's account that mutual funds.

ETFs work like any other exchange traded stock. It is all beautifully standardized.

Every mutual fund family has a slightly different network connection. Who does tax reporting? Who holds the books and records. Who do you call for trade breaks, trade exceptions, and reconciliation issues?

I liken the mutual fund/ETF divided to manual vs. automatic transmissions in cars. I love manual transmissions. Manufacturers would prefer to design, test, build, train mechanics, and manufacture spare parts for a single transmissions. It is overall cheaper for manufactures just to offer the more expensive automatic transmission.

Mutual funds and manual transmissions are going to slowly die away. While you might like them, the cost structure is going to push the manufactures away.
I went from MFs to ETFs and back to MFs. The MFs are the automatic transmission for me; buying and selling in dollars...not shares, make exchanges whenever convenient...not only when the market is open, not trying to follow and time the best price during the day to buy or sell, dividends reinvested automatically...not another transaction to do or think about. In short, Simplicity.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by alex_686 » Sun May 24, 2020 1:55 pm

Ricola wrote:
Sun May 24, 2020 1:42 pm
I went from MFs to ETFs and back to MFs. The MFs are the automatic transmission for me; buying and selling in dollars...not shares, make exchanges whenever convenient...not only when the market is open, not trying to follow and time the best price during the day to buy or sell, dividends reinvested automatically...not another transaction to do or think about. In short, Simplicity.
The OP was asking why Vanguard was pushing ETFs. To restate,in short, Simplicity. Simplicity for Vanguard, maybe not for you. In my metaphor, I was focused on the decline of older technologies, even if did not line up with consumer preferences.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Fclevz » Sun May 24, 2020 1:56 pm

But Vanguard also has many funds for which there is no ETF share class.

VaR
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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by VaR » Sun May 24, 2020 2:07 pm

Vanguard hasn't pushed me in any way towards ETFs, other than converting my account to once that accepts ETFs. That turned out to be quite a convenience, as it allows me to purchase ETFs in addition to mutual funds.

Robert20
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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Robert20 » Sun May 24, 2020 2:21 pm

ronin wrote:
Sun May 24, 2020 12:49 pm
I'm curious to get perspective from others on what appears to be a gradual shift in Vanguard's preference for its customers to use their ETFs in lieu of their mutual funds. They prominently tout how easy it is to convert from MFs to ETFs. I'm hearing that their PAS will eventually no longer support MFs, requiring participants to use ETFs. What's VG's motive? Seems like doig so only makes it easier for customers to easily move their assets to another brokerage platform (competitor) which could be ok for VG or perhaps even part of a longer term plan to phase out direct retail relationships. This is purely my speculation however.

This is is not intended to argue the merits of MFs vs ETFs, nor is it intended to argue the merits of Vanguard's legacy MF platform versus their brokerage platform as both of those topics have been discussed at length in other threads.
I prefer ETFs a lot.. I know the price I am paying for...

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by HawkeyePierce » Sun May 24, 2020 2:22 pm

Fclevz wrote:
Sun May 24, 2020 1:56 pm
But Vanguard also has many funds for which there is no ETF share class.
They also have many ETFs for which their is no mutual fund share class.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by sarabayo » Sun May 24, 2020 5:15 pm

Fclevz wrote:
Sun May 24, 2020 1:56 pm
But Vanguard also has many funds for which there is no ETF share class.
Why is that, by the way? If ETFs are easier and cheaper for them to administer, why don't they add ETF share classes to all of their mutual funds?

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by retired@50 » Sun May 24, 2020 5:22 pm

sarabayo wrote:
Sun May 24, 2020 5:15 pm
Fclevz wrote:
Sun May 24, 2020 1:56 pm
But Vanguard also has many funds for which there is no ETF share class.
Why is that, by the way? If ETFs are easier and cheaper for them to administer, why don't they add ETF share classes to all of their mutual funds?
Because ETFs require 100% transparency with regard to holdings.

Many (if not all) actively managed mutual funds don't want the fund holdings to become public knowledge. Since they only have to report holdings quarterly, as a historical record, you really don't know what an active mutual fund manager is doing today. This is the "secret sauce" that they supposedly bring to the investing game. If the holdings of active managers are revealed in "real time" then others might copy the trading patterns and eliminate any potential advantage.

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

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by stan1 » Sun May 24, 2020 5:23 pm

sarabayo wrote:
Sun May 24, 2020 5:15 pm
Fclevz wrote:
Sun May 24, 2020 1:56 pm
But Vanguard also has many funds for which there is no ETF share class.
Why is that, by the way? If ETFs are easier and cheaper for them to administer, why don't they add ETF share classes to all of their mutual funds?
Actively managed ETFs have only been around for 1-2 years. I have not read anything about Vanguard offering actively managed ETFs but guessing Vanguard will go there eventually.

I don't know if they can offer ETF share classes of their active mutual funds. Would be great if they could as it would make their active mutual funds much less likely to realize capital gains distributions.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Cheez-It Guy » Sun May 24, 2020 5:57 pm

I don't really think this is their motivation, but Vanguard is BY FAR the industry leader in mutual fund assets under management. No one else is even close. With ETFs, they are second to Blackrock's iShares, and I'm sure it would be a nice feather in their cap to take that crown.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by anon_investor » Sun May 24, 2020 6:02 pm

stan1 wrote:
Sun May 24, 2020 5:23 pm
sarabayo wrote:
Sun May 24, 2020 5:15 pm
Fclevz wrote:
Sun May 24, 2020 1:56 pm
But Vanguard also has many funds for which there is no ETF share class.
Why is that, by the way? If ETFs are easier and cheaper for them to administer, why don't they add ETF share classes to all of their mutual funds?
Actively managed ETFs have only been around for 1-2 years. I have not read anything about Vanguard offering actively managed ETFs but guessing Vanguard will go there eventually.

I don't know if they can offer ETF share classes of their active mutual funds. Would be great if they could as it would make their active mutual funds much less likely to realize capital gains distributions.
I believe Vanguard's factor ETFs are technically actively managed (at least their website says that):

https://investor.vanguard.com/etf/factor-funds

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by m@ver1ck » Sun May 24, 2020 8:34 pm

I prefer ETFs in margin accounts..I prefer MFs in tax-deferred where there is no margin.
This allows be to buy/sell immidiately rather than wait. Couple of days for settlement.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by stan1 » Mon May 25, 2020 8:10 am

anon_investor wrote:
Sun May 24, 2020 6:02 pm
stan1 wrote:
Sun May 24, 2020 5:23 pm
sarabayo wrote:
Sun May 24, 2020 5:15 pm
Fclevz wrote:
Sun May 24, 2020 1:56 pm
But Vanguard also has many funds for which there is no ETF share class.
Why is that, by the way? If ETFs are easier and cheaper for them to administer, why don't they add ETF share classes to all of their mutual funds?
Actively managed ETFs have only been around for 1-2 years. I have not read anything about Vanguard offering actively managed ETFs but guessing Vanguard will go there eventually.

I don't know if they can offer ETF share classes of their active mutual funds. Would be great if they could as it would make their active mutual funds much less likely to realize capital gains distributions.
I believe Vanguard's factor ETFs are technically actively managed (at least their website says that):

https://investor.vanguard.com/etf/factor-funds
Yes, it's a matter of degree, I was specifically thinking of a an active ETF product similar to Vanguard Windsor or PRIMECAP which Vanguard does not offer today along the lines of what Avantis now offers. Factor ETFs are kind of in the middle between stock picking and index.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by anon_investor » Mon May 25, 2020 8:12 am

stan1 wrote:
Mon May 25, 2020 8:10 am
anon_investor wrote:
Sun May 24, 2020 6:02 pm
stan1 wrote:
Sun May 24, 2020 5:23 pm
sarabayo wrote:
Sun May 24, 2020 5:15 pm
Fclevz wrote:
Sun May 24, 2020 1:56 pm
But Vanguard also has many funds for which there is no ETF share class.
Why is that, by the way? If ETFs are easier and cheaper for them to administer, why don't they add ETF share classes to all of their mutual funds?
Actively managed ETFs have only been around for 1-2 years. I have not read anything about Vanguard offering actively managed ETFs but guessing Vanguard will go there eventually.

I don't know if they can offer ETF share classes of their active mutual funds. Would be great if they could as it would make their active mutual funds much less likely to realize capital gains distributions.
I believe Vanguard's factor ETFs are technically actively managed (at least their website says that):

https://investor.vanguard.com/etf/factor-funds
Yes, it's a matter of degree, I was specifically thinking of a an active ETF product similar to Vanguard Windsor or PRIMECAP which Vanguard does not offer today along the lines of what Avantis now offers. Factor ETFs are kind of in the middle between stock picking and index.
Imagine a Primecap ETF that did not kick off cap gains... :shock:

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by David Althaus » Mon May 25, 2020 9:42 am

I've had both. If (and this is no small if) you rebalance once per year or at designated framework ETF is simple and very slightly cheaper. Now that brokerages offer no fee transactions and some even offer partial share purchase there's little reason not to use them. It also seemed to make TLH simple during the recent market period. Would definitely turn off dividend reinvestment if adopted. Use dividends to lean back toward desired allocation.

If it's cheaper for Vanguard I think we can count on (in the long run) it will prove cheaper for us as owners as well.

All the best

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by bertilak » Mon May 25, 2020 10:15 am

bondsr4me wrote:
Sun May 24, 2020 1:08 pm
I prefer ETF's.
When I buy or sell a security, I want to know the price.
This works for me just fine.
I occasionally gift (in kind) MF shares to my kids and grandkids. I try to stay under $15K but it is a bit of a crap shoot because you just don't know at what price the transfers will occur. Would ETFs simplify this? Seems so.
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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Silence Dogood » Mon May 25, 2020 10:22 am

OP,

Something to keep in mind -

For Vanguard Total Stock Market Index Fund Admiral shares (VTSAX):
  • In 2010, there was a $50K minimum investment required (~$58,789.71 in 2020 dollars).
  • In 2018, there was a $10K minimum investment required (~$51,051.74 in 2020 dollars).
  • In 2020, there is a $3K minimum investment required.
So, for example, in 2010, a young investor, just starting out, would have to choose between a mutual fund with an expense ratio of 0.17% or an ETF with an expense ratio of 0.06%. In 2020, a young investor, just starting out, has to choose between a mutual fund with an expense ratio of 0.04% or an ETF with an expense ratio of 0.03%.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by bondsr4me » Mon May 25, 2020 11:01 am

bertilak wrote:
Mon May 25, 2020 10:15 am
bondsr4me wrote:
Sun May 24, 2020 1:08 pm
I prefer ETF's.
When I buy or sell a security, I want to know the price.
This works for me just fine.
I occasionally gift (in kind) MF shares to my kids and grandkids. I try to stay under $15K but it is a bit of a crap shoot because you just don't know at what price the transfers will occur. Would ETFs simplify this? Seems so.
with gifts the original cost basis goes with the stock.
generally this cost basis is used when selling (unless the FMV at time of is less than original cost basis).
there are a few more rules about the seller's basis to use when selling that need to be understood.
I would assume this would apply to ETF's also.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Xrayman69 » Mon May 25, 2020 11:18 am

If dividends are reinvested in an ETF then fractional shares will arise. How does an individual completely liquidate a position if there is a fractional share?

When an ETF is sold how long does it typically take for the funds to clear before being available to purchase alternatives. Does this make it harder to TLH if there is a period in which these funds are out of the market? Mutual funds permit direct exchange I believe.

Some studies have shown that 5-10 days per year in which the market moves can have a significant impact on performance and thus the tenant by BH to stay in the market. I have concerns that individuals will trade more often with ETFs based upon immediate sale during a down day and not be able to access funds to purchase an alternate before the market jumps up.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Nate79 » Mon May 25, 2020 11:50 am

See answers below. Really ETFs are not an issue.

Xrayman69 wrote:
Mon May 25, 2020 11:18 am
If dividends are reinvested in an ETF then fractional shares will arise. How does an individual completely liquidate a position if there is a fractional share? Easily, you just sell the shares and the broker will liquidate the fractional shares.

When an ETF is sold how long does it typically take for the funds to clear before being available to purchase alternatives. Does this make it harder to TLH if there is a period in which these funds are out of the market? Mutual funds permit direct exchange I believe. Nope, no problem. You can sell an ETF and immediately buy with the funds because the settled funds will be available in time. This is no different than when you exchange mutual funds.

Some studies have shown that 5-10 days per year in which the market moves can have a significant impact on performance and thus the tenant by BH to stay in the market. I have concerns that individuals will trade more often with ETFs based upon immediate sale during a down day and not be able to access funds to purchase an alternate before the market jumps up. Nope, no issue. You can be a buy and hold investor with ETFs.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Xrayman69 » Thu May 28, 2020 11:00 am

Nate79 wrote:
Mon May 25, 2020 11:50 am
See answers below. Really ETFs are not an issue.

Xrayman69 wrote:
Mon May 25, 2020 11:18 am
If dividends are reinvested in an ETF then fractional shares will arise. How does an individual completely liquidate a position if there is a fractional share? Easily, you just sell the shares and the broker will liquidate the fractional shares.

When an ETF is sold how long does it typically take for the funds to clear before being available to purchase alternatives. Does this make it harder to TLH if there is a period in which these funds are out of the market? Mutual funds permit direct exchange I believe. Nope, no problem. You can sell an ETF and immediately buy with the funds because the settled funds will be available in time. This is no different than when you exchange mutual funds.

Some studies have shown that 5-10 days per year in which the market moves can have a significant impact on performance and thus the tenant by BH to stay in the market. I have concerns that individuals will trade more often with ETFs based upon immediate sale during a down day and not be able to access funds to purchase an alternate before the market jumps up. Nope, no issue. You can be a buy and hold investor with ETFs.
Just sold VOO from a ROTH account. Transaction completed. It states that “X” is available for trade. 0 in settlement funds. How do I buy something else? Site doesn’t seem very intuitive, I’m probably missing something.

Thanks.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by muffins14 » Thu May 28, 2020 11:04 am

the X available for trade are funds that you can use to purchase new securities. Have you tried to place an order yet?

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Leif » Thu May 28, 2020 11:13 am

I have no particular insight as to why they are pushing ETFs. In fact, I only noticed they are pushing for us to convert our mutual fund accounts to brokerage accounts, calling it an "Upgrade". However, cost seems to be a reasonable explanation.

I actually prefer the way mutual fund accounts are displayed on their webpage to the brokerage accounts. From my perspective, if they want me to use ETFs then they need to make it as easy as buying and selling mutual funds. You place an order anytime during the day, or the night before, and expect to get the end of day closing price.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by mauwong » Thu May 28, 2020 11:38 am

I'm not familiar with ETF. So please bear with me if this is a stupid question.

Would an ETF created on different time period priced differently assuming a change in stock component of the index that it's based on? Let's say an ETF A is created based on Vanguard 500 Index mutual fund. 10 years later a new ETF B is created on the same fund though overtime Vanguard 500 dropped certain companies or added new companies based on the index criteria. Would ETF A and B be priced differently? If so, doesn't that make it difficult to track the pricing of each different variance of this particular ETF?

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Tommy » Thu May 28, 2020 11:42 am

Explain me please - when I sell MF it must pay me price of the end of the day. Even in the huge sell off, whatever price will be by end of the day I'll get.
If I sell ETF I actually need to find buyer - somebody needs to buy.
So, theoretically, if everything goes down and everybody selling - you might not find buyer? Or you will sell for less than if you sold MF?
Last edited by Tommy on Thu May 28, 2020 11:49 am, edited 1 time in total.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Cheez-It Guy » Thu May 28, 2020 11:47 am

mauwong wrote:
Thu May 28, 2020 11:38 am
I'm not familiar with ETF. So please bear with me if this is a stupid question.

Would an ETF created on different time period priced differently assuming a change in stock component of the index that it's based on? Let's say an ETF A is created based on Vanguard 500 Index mutual fund. 10 years later a new ETF B is created on the same fund though overtime Vanguard 500 dropped certain companies or added new companies based on the index criteria. Would ETF A and B be priced differently? If so, doesn't that make it difficult to track the pricing of each different variance of this particular ETF?
The ETFs update their holdings as the market and the indices on which they are based change. So this scenario is not likely to happen. Vanguard will not create two ETFs based on the same index. What starts as ETF A will BECOME ETF B naturally over time.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by HawkeyePierce » Thu May 28, 2020 11:47 am

mauwong wrote:
Thu May 28, 2020 11:38 am
I'm not familiar with ETF. So please bear with me if this is a stupid question.

Would an ETF created on different time period priced differently assuming a change in stock component of the index that it's based on? Let's say an ETF A is created based on Vanguard 500 Index mutual fund. 10 years later a new ETF B is created on the same fund though overtime Vanguard 500 dropped certain companies or added new companies based on the index criteria. Would ETF A and B be priced differently? If so, doesn't that make it difficult to track the pricing of each different variance of this particular ETF?
They might have different share prices but (assuming no tracking error) the two ETFs would be identical in terms of their holdings. ETF A would buy and sell according to changes to the S&P500 index. In practice it's not a significant difference.

No different than two mutual funds tracking the same index created at different times.

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telemark
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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by telemark » Thu May 28, 2020 11:50 am

An even more basic question: why is Vanguard always so **** pushy? Some days I want to move everything to Fidelity, just to get a little peace and quiet.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by alex_686 » Thu May 28, 2020 11:52 am

Tommy wrote:
Thu May 28, 2020 11:42 am
Explain me please - when I sell MF it must pay me price of the end of the day. Even in the huge sell off, whatever price will be by end of the day I'll get.
If I sell ETF I actually need to find buyer - somebody needs to buy.
So, theoretically, if everything goes down and everybody selling - you might not find buyer? Or you will sell for less if you sold MF?
Former mutual fund accountant here.

The price you refer to as the end of the day price is called "Net Asset Value", or NAV. it is a accountant's estimate of the value of share is.

Or you can try to sell your ETF in a highly competitive liquid market where Arbitrage Traders are looking to make a quick penny or two. Picking up nickels in front of steamrollers, as they say.

I have posted many posts on the differences and quality of both NAV and market pricing. Both are of high quality, but in my experience ETF market pricing is of high quality.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by mauwong » Thu May 28, 2020 11:57 am

Cheez-It Guy wrote:
Thu May 28, 2020 11:47 am

The ETFs update their holdings as the market and the indices on which they are based change. So this scenario is not likely to happen. Vanguard will not create two ETFs based on the same index. What starts as ETF A will BECOME ETF B naturally over time.
I would have thought that if ETFs update their holdings, it must realize losses and gain?

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by alex_686 » Thu May 28, 2020 12:00 pm

mauwong wrote:
Thu May 28, 2020 11:57 am
Cheez-It Guy wrote:
Thu May 28, 2020 11:47 am

The ETFs update their holdings as the market and the indices on which they are based change. So this scenario is not likely to happen. Vanguard will not create two ETFs based on the same index. What starts as ETF A will BECOME ETF B naturally over time.
I would have thought that if ETF updates their holdings, it must realize losses and gain?
ETFs - generally speaking - don't buy and sell anything. They swap shares for the underlying securities. Or they swap the underlying securities for shares. Critically, swapping is not a taxable event.

I think it is a bit of cheat, that ETFs can exploit that loophole and mutual funds can - but there you go.
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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by mauwong » Thu May 28, 2020 12:15 pm

alex_686 wrote:
Thu May 28, 2020 12:00 pm
mauwong wrote:
Thu May 28, 2020 11:57 am

I would have thought that if ETF updates their holdings, it must realize losses and gain?
ETFs - generally speaking - don't buy and sell anything. They swap shares for the underlying securities. Or they swap the underlying securities for shares. Critically, swapping is not a taxable event.

I think it is a bit of cheat, that ETFs can exploit that loophole and mutual funds can - but there you go.
Ah, OK. I thought the ETF concept is that the underlying securities are not supposed to change in order to avoid capital gain and losses unlike mutual funds. Didn't consider swapping as an option.
Last edited by mauwong on Thu May 28, 2020 1:12 pm, edited 1 time in total.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Cheez-It Guy » Thu May 28, 2020 12:26 pm

telemark wrote:
Thu May 28, 2020 11:50 am
An even more basic question: why is Vanguard always so **** pushy? Some days I want to move everything to Fidelity, just to get a little peace and quiet.
Curious what latest salvo prompted this. I really don't receive any marketing communications due to settings / requests.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Gort » Thu May 28, 2020 12:34 pm

ronin wrote:
Sun May 24, 2020 12:49 pm
I'm curious to get perspective from others on what appears to be a gradual shift in Vanguard's preference for its customers to use their ETFs in lieu of their mutual funds. They prominently tout how easy it is to convert from MFs to ETFs. I'm hearing that their PAS will eventually no longer support MFs, requiring participants to use ETFs. What's VG's motive? Seems like doig so only makes it easier for customers to easily move their assets to another brokerage platform (competitor) which could be ok for VG or perhaps even part of a longer term plan to phase out direct retail relationships. This is purely my speculation however.

This is is not intended to argue the merits of MFs vs ETFs, nor is it intended to argue the merits of Vanguard's legacy MF platform versus their brokerage platform as both of those topics have been discussed at length in other threads.
What are you basing these comments on? Personal experience with Vanguard or from somewhere else?

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by arcticpineapplecorp. » Thu May 28, 2020 12:54 pm

so if I want to invest $6000 in a Roth and want to buy VTI (total stock market index fund ETF), but the price is $155.08 right now (according to google) then I can only buy 38 shares, which buys me $5893.04 in my Roth, not $6000. Is there a way around this, or would I just have to buy $6.96 in a money market ETF??

With the mutual fund, if it cost $155.08 I'd get 38.689....shares and I'd invest the entire $6000 I wanted to.

if you could buy fractional shares of ETFs that would make them more attractive for me. I know other companies are starting to do this, but I don't think Vanguard has yet, right?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Cheez-It Guy » Thu May 28, 2020 1:01 pm

arcticpineapplecorp. wrote:
Thu May 28, 2020 12:54 pm
so if I want to invest $6000 in a Roth and want to buy VTI (total stock market index fund ETF), but the price is $155.08 right now (according to google) then I can only buy 38 shares, which buys me $5893.04 in my Roth, not $6000. Is there a way around this, or would I just have to buy $6.96 in a money market ETF??

With the mutual fund, if it cost $155.08 I'd get 38.689....shares and I'd invest the entire $6000 I wanted to.

if you could buy fractional shares of ETFs that would make them more attractive for me. I know other companies are starting to do this, but I don't think Vanguard has yet, right?
Vanguard does not offer non-dividend purchases of fractional shares of ETFs yet.

You could try putting in a limit order for 39 shares at $153.85 and hope for a pullback. May never execute.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by arcticpineapplecorp. » Thu May 28, 2020 1:13 pm

Cheez-It Guy wrote:
Thu May 28, 2020 1:01 pm
arcticpineapplecorp. wrote:
Thu May 28, 2020 12:54 pm
so if I want to invest $6000 in a Roth and want to buy VTI (total stock market index fund ETF), but the price is $155.08 right now (according to google) then I can only buy 38 shares, which buys me $5893.04 in my Roth, not $6000. Is there a way around this, or would I just have to buy $6.96 in a money market ETF??

With the mutual fund, if it cost $155.08 I'd get 38.689....shares and I'd invest the entire $6000 I wanted to.

if you could buy fractional shares of ETFs that would make them more attractive for me. I know other companies are starting to do this, but I don't think Vanguard has yet, right?
Vanguard does not offer non-dividend purchases of fractional shares of ETFs yet.

You could try putting in a limit order for 39 shares at $153.85 and hope for a pullback. May never execute.
so does the extra $0.15 make my roth IRA an overcontribution ($153.85 X 39 shares = $6000.15, not $6000)?

if it doesn't pull back I never fund my Roth. That's a problem.

If it goes up instead of pull back, I would have been better buying at $155.08. That's a problem.

these are some factors that make efts undesireable for me. But I started with MFs and never saw a problem with them. They were good enough for Jack, they're good enough for me.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Cheez-It Guy » Thu May 28, 2020 1:26 pm

arcticpineapplecorp. wrote:
Thu May 28, 2020 1:13 pm
Cheez-It Guy wrote:
Thu May 28, 2020 1:01 pm
arcticpineapplecorp. wrote:
Thu May 28, 2020 12:54 pm
so if I want to invest $6000 in a Roth and want to buy VTI (total stock market index fund ETF), but the price is $155.08 right now (according to google) then I can only buy 38 shares, which buys me $5893.04 in my Roth, not $6000. Is there a way around this, or would I just have to buy $6.96 in a money market ETF??

With the mutual fund, if it cost $155.08 I'd get 38.689....shares and I'd invest the entire $6000 I wanted to.

if you could buy fractional shares of ETFs that would make them more attractive for me. I know other companies are starting to do this, but I don't think Vanguard has yet, right?
Vanguard does not offer non-dividend purchases of fractional shares of ETFs yet.

You could try putting in a limit order for 39 shares at $153.85 and hope for a pullback. May never execute.
so does the extra $0.15 make my roth IRA an overcontribution ($153.85 X 39 shares = $6000.15, not $6000)?

if it doesn't pull back I never fund my Roth. That's a problem.

If it goes up instead of pull back, I would have been better buying at $155.08. That's a problem.

these are some factors that make efts undesireable for me. But I started with MFs and never saw a problem with them. They were good enough for Jack, they're good enough for me.
I'm not advising you to use ETFs. I was just trying to find a workaround answer to your question. I use mutual funds myself for many of the same reasons you listed. As for a $0.15 over-contribution, I think that would be OK because tax forms and the IRS generally rounding to the nearest dollar. You you wouldn't want to be $0.51 in excess, but you could probably slide with $0.15.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by asif408 » Thu May 28, 2020 1:53 pm

arcticpineapplecorp. wrote:
Thu May 28, 2020 12:54 pm
so if I want to invest $6000 in a Roth and want to buy VTI (total stock market index fund ETF), but the price is $155.08 right now (according to google) then I can only buy 38 shares, which buys me $5893.04 in my Roth, not $6000. Is there a way around this, or would I just have to buy $6.96 in a money market ETF??

With the mutual fund, if it cost $155.08 I'd get 38.689....shares and I'd invest the entire $6000 I wanted to.

if you could buy fractional shares of ETFs that would make them more attractive for me. I know other companies are starting to do this, but I don't think Vanguard has yet, right?
I usually just look for some fund or funds to fill the remaining amount. In your example, since you can buy ETFs from any company at Vanguard at no commission, I'd just look for ETFs with low share price to fill the gap. I'm usually able to get my "cash turds" under $0.50

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by arcticpineapplecorp. » Thu May 28, 2020 2:59 pm

asif408 wrote:
Thu May 28, 2020 1:53 pm
arcticpineapplecorp. wrote:
Thu May 28, 2020 12:54 pm
so if I want to invest $6000 in a Roth and want to buy VTI (total stock market index fund ETF), but the price is $155.08 right now (according to google) then I can only buy 38 shares, which buys me $5893.04 in my Roth, not $6000. Is there a way around this, or would I just have to buy $6.96 in a money market ETF??

With the mutual fund, if it cost $155.08 I'd get 38.689....shares and I'd invest the entire $6000 I wanted to.

if you could buy fractional shares of ETFs that would make them more attractive for me. I know other companies are starting to do this, but I don't think Vanguard has yet, right?
I usually just look for some fund or funds to fill the remaining amount. In your example, since you can buy ETFs from any company at Vanguard at no commission, I'd just look for ETFs with low share price to fill the gap. I'm usually able to get my "cash turds" under $0.50
yeah, this is just all kinda funny that's all. I mean if something is touted as "better" or "more convenient" etc, then why isn't it just what it's advertised to be?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by retired@50 » Thu May 28, 2020 5:01 pm

arcticpineapplecorp. wrote:
Thu May 28, 2020 2:59 pm

yeah, this is just all kinda funny that's all. I mean if something is touted as "better" or "more convenient" etc, then why isn't it just what it's advertised to be?
I can only agree that ETFs are cheaper by way of a lower expense ratio. However, depending on your trading patterns and habits that slight advantage could disappear. I'll never think of them as more convenient or better since I don't put any value on being forced to trade during the trading day. If a strategy relies on squeezing out a couple extra cents per share to achieve success, then it's a bad strategy.

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

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by telemark » Thu May 28, 2020 7:24 pm

Cheez-It Guy wrote:
Thu May 28, 2020 12:26 pm
telemark wrote:
Thu May 28, 2020 11:50 am
An even more basic question: why is Vanguard always so **** pushy? Some days I want to move everything to Fidelity, just to get a little peace and quiet.
Curious what latest salvo prompted this. I really don't receive any marketing communications due to settings / requests.
Nothing specific, but I get five or six emails a month about webinars and such, and when I log in to the web site I almost always have to click through something just to check my balances. And all I want to do is stay the course, don't want to hear anyone's guesses about what the market is doing*. Maybe I need to look at my settings again.

* because I might believe them, and that would be bad.

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by JAZZISCOOL » Thu May 28, 2020 7:54 pm

alex_686 wrote:
Thu May 28, 2020 11:52 am
Tommy wrote:
Thu May 28, 2020 11:42 am
Explain me please - when I sell MF it must pay me price of the end of the day. Even in the huge sell off, whatever price will be by end of the day I'll get.
If I sell ETF I actually need to find buyer - somebody needs to buy.
So, theoretically, if everything goes down and everybody selling - you might not find buyer? Or you will sell for less if you sold MF?
Former mutual fund accountant here.

The price you refer to as the end of the day price is called "Net Asset Value", or NAV. it is a accountant's estimate of the value of share is.

Or you can try to sell your ETF in a highly competitive liquid market where Arbitrage Traders are looking to make a quick penny or two. Picking up nickels in front of steamrollers, as they say.

I have posted many posts on the differences and quality of both NAV and market pricing. Both are of high quality, but in my experience ETF market pricing is of high quality.
+1

The short term tracking error of ETF's may be high w.r.t. the index it tracks but over the long term, the total return will be close to the index which is key IMO. Most BH's are long term investors.

I have been investing in ETF's for years and find them easy to invest in. I like the ability to make trades in the middle of the day if needed vs. waiting for end of day NAV with MF's.

I will say that the fixed income market dislocation in bond ETF's in March was a bit scary but the Fed/Treasury stepped in to support the bond markets and things have since stabilized. :happy

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Re: Why Vanguard Seems to Be Pushing Us Towards ETFs?

Post by Cheez-It Guy » Thu May 28, 2020 8:38 pm

telemark wrote:
Thu May 28, 2020 7:24 pm
Cheez-It Guy wrote:
Thu May 28, 2020 12:26 pm
telemark wrote:
Thu May 28, 2020 11:50 am
An even more basic question: why is Vanguard always so **** pushy? Some days I want to move everything to Fidelity, just to get a little peace and quiet.
Curious what latest salvo prompted this. I really don't receive any marketing communications due to settings / requests.
Nothing specific, but I get five or six emails a month about webinars and such, and when I log in to the web site I almost always have to click through something just to check my balances. And all I want to do is stay the course, don't want to hear anyone's guesses about what the market is doing*. Maybe I need to look at my settings again.

* because I might believe them, and that would be bad.
When you get E-Mails from Vanguard about webinars that are of no interest to you, just click the unsubscribe or similar functionality at the bottom of the message. In my experience, they will respect your choice. Also, call them and ask them to add you to a "do not market" group, or something like that. THOSE settings are unfortunately not user-accessible, but the reps should be familiar with it and able to help you out. As such, I am not annoyed by Vanguard communications at all. Any postal and E-Mail communications I receive from them are something important based on our business relationship.

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