selling ETFs, buying Mutual Funds

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RunTMC
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selling ETFs, buying Mutual Funds

Post by RunTMC »

Short time lurker, first time poster
I have a few questions for you wise and humble folks :D

Early this year I signed up for Vanguard Personal Advisor Services for a taxable account. They set me up with mostly VTI and VXUS ETFs.
I recently cancelled the Advisor services and want to handle it on my own. However, I think I would rather deal with the simplicity of mutual funds (VTSAX and VTIAX) and will buy and hold.

1) I've read that mirrored Vanguard ETF/MF funds are equal in tax efficiency. If so, it seems like the MF would be better for my needs. I don't really care about a .01% ER difference. Can someone please confirm the tax efficiency is the same?

2) Can I sell my VTI and VXUS during trading hours and then immediately buy VTSAX and VTIAX at market close? Is there a waiting period or is there some penalty?

Thanks for your input and help!
02nz
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Re: selling ETFs, buying Mutual Funds

Post by 02nz »

Tax efficiency is the same. No penalty or waiting period for what you describe. But do the ETFs have gains? If so I wouldn’t sell them unless you are able to “harvest” gains at 0% tax rate. This is especially true since you've held those shares less than a year, meaning the gains are taxed like ordinary income, instead of the lower long-term capital gains rate.

If on the other hand you have a loss, you might want to take this opportunity to tax loss harvest. However, then you'd need to buy slightly different funds. If you sold VTI and bought VTSAX, that's a wash sale (at least most here think it would be), you could buy VFIAX instead, as it tracks a different index but performs very similarly.

Also, probably you know this but just in case: to get the mutual fund’s NAV for that day, you need to place your order not "at" but before market close. Can be just moments before.
LookinAround
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Re: selling ETFs, buying Mutual Funds

Post by LookinAround »

If you sell ETF and buy MF on the same day you need be aware of when the funds settle.

ETF settles in 2 business days. MF settles in 1 business day. If you sell ETF and buy MF's the same day:
- The funds to buy MF are required next business day
- But proceeds from selling ETF aren't available for 2 business day

If you don't have the funds available next day to buy MF you'll have a trading violation
livesoft
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Re: selling ETFs, buying Mutual Funds

Post by livesoft »

Mutual funds are more complicated than ETFs which is one reason why Vanguard PAS does not use them. Maybe just buy mutual funds with new money to try one out before you commit to switching?
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LookinAround
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Re: selling ETFs, buying Mutual Funds

Post by LookinAround »

You might also find this boglehead wiki helpful ETFs vs Mutual Fund

Mutual funds also have cap gain distributions. ETF not. If in a taxable account, those cap gains add to your income and taxes. If you want to better predict and control your income for tax planning, ETFs have an advantage as they don't generate those end of year cap gain distributions

p.s. As for myself, I have both ETF and MF in my taxable but only MF are those I like that don't have an equivalent ETF
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RunTMC
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Re: selling ETFs, buying Mutual Funds

Post by RunTMC »

livesoft wrote: Wed Jun 17, 2020 3:54 pm Mutual funds are more complicated than ETFs which is one reason why Vanguard PAS does not use them. Maybe just buy mutual funds with new money to try one out before you commit to switching?
Why would mutual funds more complicated for me than ETFs? They seem much easier to me to rebalance, I can buy partial shares, and I deal with one price when buying/selling.

Maybe I'm missing something super obvious :shock:
02nz
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Re: selling ETFs, buying Mutual Funds

Post by 02nz »

LookinAround wrote: Wed Jun 17, 2020 4:30 pm Mutual funds also have cap gain distributions. ETF not. If in a taxable account, those cap gains add to your income and taxes. If you want to better predict and control your income for tax planning, ETFs have an advantage as they don't generate those end of year cap gain distributions
That's true for most mutual funds, but not Vanguard index mutual funds with an ETF equivalent, which is what OP is considering. Vanguard's patented structure makes ETFs and mutual funds (e.g., VTI and VTSAX) classes of the same fund, and capital gains that would normally have to be distributed to VTSAX shareholders are "flushed out" via VTI. So Vanguard index mutual funds are generally as tax-efficient as their ETF equivalents, and typically haven't distributed capital gains in many years.
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Re: selling ETFs, buying Mutual Funds

Post by abuss368 »

I think mutual funds are easy and have a lot of advantages. I would try buying one to see if you are comfortable. Funds price NAV once a day after market close.

I don’t trade so I have no need for ETFs.
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livesoft
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Re: selling ETFs, buying Mutual Funds

Post by livesoft »

RunTMC wrote: Wed Jun 17, 2020 4:30 pm
livesoft wrote: Wed Jun 17, 2020 3:54 pm Mutual funds are more complicated than ETFs which is one reason why Vanguard PAS does not use them. Maybe just buy mutual funds with new money to try one out before you commit to switching?
Why would mutual funds more complicated for me than ETFs? They seem much easier to me to rebalance, I can buy partial shares, and I deal with one price when buying/selling.

Maybe I'm missing something super obvious :shock:
With ETFs you know the price you are buying/selling at, but with mutual funds the price is some unknown future price.
With ETFs you can get the transactions done instantly and see the results without waiting for some future account update.

My main point is that ETFs are not complicated at all. It may simply be that you are more familiar with mutual funds. Those folks familiar with ETFs may think mutual funds are more complicated.

I use both ETFs and mutual funds.
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Gufomel
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Re: selling ETFs, buying Mutual Funds

Post by Gufomel »

LookinAround wrote: Wed Jun 17, 2020 3:50 pm If you sell ETF and buy MF on the same day you need be aware of when the funds settle.

ETF settles in 2 business days. MF settles in 1 business day. If you sell ETF and buy MF's the same day:
- The funds to buy MF are required next business day
- But proceeds from selling ETF aren't available for 2 business day

If you don't have the funds available next day to buy MF you'll have a trading violation
Can anyone else verify this? I did just this earlier this year - sold ETFs right before the market closed and used all of the proceeds to buy mutual funds (which were purchased that night after market close). I didn’t get a trading violation, unless I could have incurred a violation without being notified.
sport
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Re: selling ETFs, buying Mutual Funds

Post by sport »

livesoft wrote: Wed Jun 17, 2020 3:54 pm Mutual funds are more complicated than ETFs which is one reason why Vanguard PAS does not use them. Maybe just buy mutual funds with new money to try one out before you commit to switching?
I would think that ETFs are more complicated, especially for a novice investor. With ETFs, you get to deal with spreads, limit orders, market orders, and whole shares. IMO, mutual funds are much simpler. You put in your buy or sell order and it executes at 4:00 PM Eastern Time. You can make transactions down to the penny if you wish. Fractional shares are the norm.
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Re: selling ETFs, buying Mutual Funds

Post by LookinAround »

Gufomel wrote: Wed Jun 17, 2020 5:13 pm
LookinAround wrote: Wed Jun 17, 2020 3:50 pm If you sell ETF and buy MF on the same day you need be aware of when the funds settle.

ETF settles in 2 business days. MF settles in 1 business day. If you sell ETF and buy MF's the same day:
- The funds to buy MF are required next business day
- But proceeds from selling ETF aren't available for 2 business day

If you don't have the funds available next day to buy MF you'll have a trading violation
Can anyone else verify this? I did just this earlier this year - sold ETFs right before the market closed and used all of the proceeds to buy mutual funds (which were purchased that night after market close). I didn’t get a trading violation, unless I could have incurred a violation without being notified.
OK. I've been under that impression but just double checked with Vanguard myself. I was incorrect. You can use unsettled ETF funds to buy a mutual fund "in good faith" i.e. a simple trade. But you couldn't then turnaround and sell a fund you bought with still unsettled fund. So I stand corrected and also learned along the way . Thanks :)
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Re: selling ETFs, buying Mutual Funds

Post by Gufomel »

LookinAround wrote: Wed Jun 17, 2020 5:49 pm
Gufomel wrote: Wed Jun 17, 2020 5:13 pm
LookinAround wrote: Wed Jun 17, 2020 3:50 pm If you sell ETF and buy MF on the same day you need be aware of when the funds settle.

ETF settles in 2 business days. MF settles in 1 business day. If you sell ETF and buy MF's the same day:
- The funds to buy MF are required next business day
- But proceeds from selling ETF aren't available for 2 business day

If you don't have the funds available next day to buy MF you'll have a trading violation
Can anyone else verify this? I did just this earlier this year - sold ETFs right before the market closed and used all of the proceeds to buy mutual funds (which were purchased that night after market close). I didn’t get a trading violation, unless I could have incurred a violation without being notified.
OK. I've been under that impression but just double checked with Vanguard myself. I was incorrect. You can use unsettled ETF funds to buy a mutual fund "in good faith" i.e. a simple trade. But you couldn't then turnaround and sell a fund you bought with still unsettled fund. So I stand corrected and also learned along the way . Thanks :)
No worries thanks for doing the work for me to check! :D
TaxingAccount
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Re: selling ETFs, buying Mutual Funds

Post by TaxingAccount »

LookinAround wrote: Wed Jun 17, 2020 5:49 pm
Gufomel wrote: Wed Jun 17, 2020 5:13 pm
LookinAround wrote: Wed Jun 17, 2020 3:50 pm If you sell ETF and buy MF on the same day you need be aware of when the funds settle.

ETF settles in 2 business days. MF settles in 1 business day. If you sell ETF and buy MF's the same day:
- The funds to buy MF are required next business day
- But proceeds from selling ETF aren't available for 2 business day

If you don't have the funds available next day to buy MF you'll have a trading violation
Can anyone else verify this? I did just this earlier this year - sold ETFs right before the market closed and used all of the proceeds to buy mutual funds (which were purchased that night after market close). I didn’t get a trading violation, unless I could have incurred a violation without being notified.
OK. I've been under that impression but just double checked with Vanguard myself. I was incorrect. You can use unsettled ETF funds to buy a mutual fund "in good faith" i.e. a simple trade. But you couldn't then turnaround and sell a fund you bought with still unsettled fund. So I stand corrected and also learned along the way . Thanks :)
I can verify it.
Last edited by TaxingAccount on Sun Aug 09, 2020 4:31 am, edited 2 times in total.
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1789
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Re: selling ETFs, buying Mutual Funds

Post by 1789 »

Yes, i also prefer MFs over ETF. I would sell ETFs and get MFs. Even without tax efficiency i would do same thing in other brokerages (eg: Fidelity) as well.
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Re: selling ETFs, buying Mutual Funds

Post by Robert20 »

MF have front load fees.. ETFs dont have any. As per me, ETFs are best.
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Re: selling ETFs, buying Mutual Funds

Post by sport »

Robert20 wrote: Wed Jun 17, 2020 10:44 pm MF have front load fees.. ETFs dont have any. As per me, ETFs are best.
Mutual funds only have loads if you don't know to buy no-load funds. Vanguard MFs are no-load.
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anon_investor
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Re: selling ETFs, buying Mutual Funds

Post by anon_investor »

sport wrote: Wed Jun 17, 2020 11:23 pm
Robert20 wrote: Wed Jun 17, 2020 10:44 pm MF have front load fees.. ETFs dont have any. As per me, ETFs are best.
Mutual funds only have loads if you don't know to buy no-load funds. Vanguard MFs are no-load.
+1. Who here buys front load mutual funds???
software
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Re: selling ETFs, buying Mutual Funds

Post by software »

TaxingAccount wrote: Wed Jun 17, 2020 6:59 pm
LookinAround wrote: Wed Jun 17, 2020 5:49 pm
Gufomel wrote: Wed Jun 17, 2020 5:13 pm
LookinAround wrote: Wed Jun 17, 2020 3:50 pm If you sell ETF and buy MF on the same day you need be aware of when the funds settle.

ETF settles in 2 business days. MF settles in 1 business day. If you sell ETF and buy MF's the same day:
- The funds to buy MF are required next business day
- But proceeds from selling ETF aren't available for 2 business day

If you don't have the funds available next day to buy MF you'll have a trading violation
Can anyone else verify this? I did just this earlier this year - sold ETFs right before the market closed and used all of the proceeds to buy mutual funds (which were purchased that night after market close). I didn’t get a trading violation, unless I could have incurred a violation without being notified.
OK. I've been under that impression but just double checked with Vanguard myself. I was incorrect. You can use unsettled ETF funds to buy a mutual fund "in good faith" i.e. a simple trade. But you couldn't then turnaround and sell a fund you bought with still unsettled fund. So I stand corrected and also learned along the way . Thanks :)
I can verify it. I sold an ETF and used the funds to buy a mutual fund the same day during market hours and ally invest charged me 7.5% interest for not having the funds available the next day. The reason you didn't get a trading violation in your example is because you bought after the close instead of before the close.
It sounds like you may have been doing the trades in a margin account which is a completely different beast (and has different rules) from a cash account.
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Re: selling ETFs, buying Mutual Funds

Post by muffins14 »

I agree with livesoft here. Why is it better to “avoid dealing with the spread” and instead lock yourself into a purchase price that is totally unknown, because the market can change between your execution and end of the trading day? We’re talking about a spread of like a couple pennies in VTI/VXUS vs an unknown end-of-day value with a mutual fund. You can also purchase fractional amounts of ETFs at many brokerages, just like you want to purchase an arbitrary amount of a mutual fund
software
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Re: selling ETFs, buying Mutual Funds

Post by software »

muffins14 wrote: Wed Jun 17, 2020 11:48 pm I agree with livesoft here. Why is it better to “avoid dealing with the spread” and instead lock yourself into a purchase price that is totally unknown, because the market can change between your execution and end of the trading day? We’re talking about a spread of like a couple pennies in VTI/VXUS vs an unknown end-of-day value with a mutual fund. You can also purchase fractional amounts of ETFs at many brokerages, just like you want to purchase an arbitrary amount of a mutual fund
If you are buying with the intention to hold for decades, what does the price movement of a few hours matter. Regardless, there is no right answer here.
TaxingAccount
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Re: selling ETFs, buying Mutual Funds

Post by TaxingAccount »

software wrote: Wed Jun 17, 2020 11:41 pm
TaxingAccount wrote: Wed Jun 17, 2020 6:59 pm
LookinAround wrote: Wed Jun 17, 2020 5:49 pm
Gufomel wrote: Wed Jun 17, 2020 5:13 pm
LookinAround wrote: Wed Jun 17, 2020 3:50 pm If you sell ETF and buy MF on the same day you need be aware of when the funds settle.

ETF settles in 2 business days. MF settles in 1 business day. If you sell ETF and buy MF's the same day:
- The funds to buy MF are required next business day
- But proceeds from selling ETF aren't available for 2 business day

If you don't have the funds available next day to buy MF you'll have a trading violation
Can anyone else verify this? I did just this earlier this year - sold ETFs right before the market closed and used all of the proceeds to buy mutual funds (which were purchased that night after market close). I didn’t get a trading violation, unless I could have incurred a violation without being notified.
OK. I've been under that impression but just double checked with Vanguard myself. I was incorrect. You can use unsettled ETF funds to buy a mutual fund "in good faith" i.e. a simple trade. But you couldn't then turnaround and sell a fund you bought with still unsettled fund. So I stand corrected and also learned along the way . Thanks :)
I can verify it. I sold an ETF and used the funds to buy a mutual fund the same day during market hours and ally invest charged me 7.5% interest for not having the funds available the next day. The reason you didn't get a trading violation in your example is because you bought after the close instead of before the close.
It sounds like you may have been doing the trades in a margin account which is a completely different beast (and has different rules) from a cash account.
No this was in an IRA.
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Re: selling ETFs, buying Mutual Funds

Post by nanameg »

livesoft wrote: Wed Jun 17, 2020 3:54 pm Mutual funds are more complicated than ETFs which is one reason why Vanguard PAS does not use them. Maybe just buy mutual funds with new money to try one out before you commit to switching?
I don’t see how mutual funds are more complicated than ETF’s ... especially if u plan never to sell anything until u begin withdrawing to fund retirement. How are they more complicated in that situation?
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Re: selling ETFs, buying Mutual Funds

Post by MikeG62 »

RunTMC wrote: Wed Jun 17, 2020 3:04 pm
...I've read that mirrored Vanguard ETF/MF funds are equal in tax efficiency. If so,it seems like the MF would be better for my needs. I don't really care about a .01% ER difference. Can someone please confirm the tax efficiency is the same?
Owning both MF’s and ETF’s I don’t get why you have drawn this conclusion. After all, they are essentially the same product. Personally, I like knowing that I’m going to get the current price when I place the order (buy or sell) and therefore prefer to use an ETF. With a MF, trades must be placed during the market and get the closing price. So a slight downside for me. Also, MF “could” distribute capital gains from trading activity. I’ve never seen an ETF I invest in distribute a capital gain. So there is that too.
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Re: selling ETFs, buying Mutual Funds

Post by jhfenton »

TaxingAccount wrote: Wed Jun 17, 2020 6:59 pm
LookinAround wrote: Wed Jun 17, 2020 5:49 pm OK. I've been under that impression but just double checked with Vanguard myself. I was incorrect. You can use unsettled ETF funds to buy a mutual fund "in good faith" i.e. a simple trade. But you couldn't then turnaround and sell a fund you bought with still unsettled fund. So I stand corrected and also learned along the way . Thanks :)
I can verify it. I sold an ETF and used the funds to buy a mutual fund the same day during market hours and ally invest charged me 7.5% interest for not having the funds available the next day. The reason you didn't get a trading violation in your example is because you bought after the close instead of before the close.
No. You were charged 7.5% interest because you had a margin account. Vanguard allows the same-day purchase of Vanguard mutual funds with unsettled cash in a non-margin account, no strings attached. I do it all the time. (If you do have a margin account, you will be charged for one day's interest.)

Vanguard's brokerage flexibility is one of the reasons I stay with their brokerage. They also allow me to buy an ETF with no cash, and fund it afterwards with the sale of a mutual fund, another ETF, or a cash transfer. In my HSA at Fidelity, for example, I have to fund an ETF purchase in advance. (And selling a mutual fund doesn't result in cash being available until the next day.)
TaxingAccount
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Re: selling ETFs, buying Mutual Funds

Post by TaxingAccount »

jhfenton wrote: Thu Jun 18, 2020 10:25 am
TaxingAccount wrote: Wed Jun 17, 2020 6:59 pm
LookinAround wrote: Wed Jun 17, 2020 5:49 pm OK. I've been under that impression but just double checked with Vanguard myself. I was incorrect. You can use unsettled ETF funds to buy a mutual fund "in good faith" i.e. a simple trade. But you couldn't then turnaround and sell a fund you bought with still unsettled fund. So I stand corrected and also learned along the way . Thanks :)
I can verify it. I sold an ETF and used the funds to buy a mutual fund the same day during market hours and ally invest charged me 7.5% interest for not having the funds available the next day. The reason you didn't get a trading violation in your example is because you bought after the close instead of before the close.
No. You were charged 7.5% interest because you had a margin account. Vanguard allows the same-day purchase of Vanguard mutual funds with unsettled cash in a non-margin account, no strings attached. I do it all the time. (If you do have a margin account, you will be charged for one day's interest.)

Vanguard's brokerage flexibility is one of the reasons I stay with their brokerage. They also allow me to buy an ETF with no cash, and fund it afterwards with the sale of a mutual fund, another ETF, or a cash transfer. In my HSA at Fidelity, for example, I have to fund an ETF purchase in advance. (And selling a mutual fund doesn't result in cash being available until the next day.)
No this was in an IRA.
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Re: selling ETFs, buying Mutual Funds

Post by Jack FFR1846 »

I don't think its all that unusual to be able to buy with unsettled funds or even with no cash. I got scared some time ago, selling an ETF at Schwab and buying a stock. I realized that the funds were unsettled. I called and they explained to me that they buy for me and so long as the money arrives in 2 business days (or is unsettled), all is fine. I used this information for the next time, where I rounded up the number of shares to buy, based on my unsettled cash and then ACH'd over $20 to make up the amount owed to pay the rest of that extra share.

Personally, I really don't care and have both mutual funds and ETFs. I do, however like the fact that I have control over what I pay for ETFs per share, where I have no control over this for MFs.
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Re: selling ETFs, buying Mutual Funds

Post by jhfenton »

TaxingAccount wrote: Thu Jun 18, 2020 10:30 am No this was in an IRA.
You can have "limited margin" for IRAs. I don't see how they would have authority to charge interest unless it is a margin account.
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