ETF Novice

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pascalwager
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ETF Novice

Post by pascalwager » Sun Jun 21, 2020 3:04 pm

I'm going to be doing an exchange at Schwab--from one mutual fund into five new funds in a taxable account. I noticed that all of the ETF versions of the new funds show a history of zero capital gains. Is this an obvious reason to avoid the mutual fund version and, instead, purchase ETFs? All of the funds are passively managed Schwab funds.

Also, at least one of my desired asset classes is not available in the mutual fund version.

I have absolutely no experience using ETFs, but I'm doing a crash course right now. I would be avoiding the early and late trading hours, but would probably be inclined to do market orders. Market conditions will be relevant as I'm trying to use up some realized losses in my general portfolio and avoid net capital gains from the sales.
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jjface
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Re: ETF Novice

Post by jjface » Sun Jun 21, 2020 3:07 pm

Keep it simple. Why 5 funds?

Plus most index mutual funds are tax efficient enough to not worry about it.

livesoft
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Re: ETF Novice

Post by livesoft » Sun Jun 21, 2020 3:14 pm

Just don't do all your trades all at once. That is, use this opportunity to learn from doing one trade, then another trade, then another trade. With all these no-commission trades available everywhere, you can even split up a single order into multiple orders just for the learning experiences.

A major problem with bogleheads.org is that simple and easy things get blown up out of proportion and some readers start to believe the falsehoods, so much that this place becomes an echo chamber. Think for yourself.
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pascalwager
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Re: ETF Novice

Post by pascalwager » Sun Jun 21, 2020 3:39 pm

jjface wrote:
Sun Jun 21, 2020 3:07 pm
Keep it simple. Why 5 funds?

Plus most index mutual funds are tax efficient enough to not worry about it.
I have an old five-fund DFA portfolio and I'm not allowed to purchase new DFA shares. A while back I finally rebalanced from US into the Schwab Intl Index Fund (EAFE benchmark), but now I'd like to do a more faithful rebalance by using large value, small cap, and emerging market funds. I'll end up with ten funds, but most rebalancing will be done with five funds.

I don't want to sell out of value and size while those markets are currently depressed and then buy total market funds which have already partially rebounded from the market turmoil.

Most of the Schwab index funds do have relatively high turnover percentages, but the ETF versions somehow avoid generating capital gains.
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typical.investor
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Re: ETF Novice

Post by typical.investor » Sun Jun 21, 2020 3:58 pm

jjface wrote:
Sun Jun 21, 2020 3:07 pm
Keep it simple. Why 5 funds?

Plus most index mutual funds are tax efficient enough to not worry about it.
I estimate the tax cost to often be larger than the ER.

Thus, I’d prefer ETFs in taxable.

Trading ETFs isn’t difficult. If the ask (price someone is willing to sell at) is $25.50 for instance, best practice to buy is a Limit Order around $25.53 or so (or $25.55 if the price is climbing and you still want to get in). It will likely execute as a market order and your broker will try to get you the best price available. If there is a temporary glitch or the price is rising dramatically, the order won’t fill.

That will avoid trading when the market is going crazy and things aren’t priced correctly (a rare event).

Do the opposite and set the limit a little below the bid (price at which someone is willing to buy) in order to sell.

Market orders are often fine too.

jjface
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Re: ETF Novice

Post by jjface » Sun Jun 21, 2020 4:52 pm

typical.investor wrote:
Sun Jun 21, 2020 3:58 pm
jjface wrote:
Sun Jun 21, 2020 3:07 pm
Keep it simple. Why 5 funds?

Plus most index mutual funds are tax efficient enough to not worry about it.
I estimate the tax cost to often be larger than the ER.
I guess it depends on your tax position. I know there are lots of here with large taxable balances and large incomes. I don't think it would matter as much to average Joe.

typical.investor
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Re: ETF Novice

Post by typical.investor » Sun Jun 21, 2020 9:22 pm

jjface wrote:
Sun Jun 21, 2020 4:52 pm
typical.investor wrote:
Sun Jun 21, 2020 3:58 pm
jjface wrote:
Sun Jun 21, 2020 3:07 pm
Keep it simple. Why 5 funds?

Plus most index mutual funds are tax efficient enough to not worry about it.
I estimate the tax cost to often be larger than the ER.
I guess it depends on your tax position. I know there are lots of here with large taxable balances and large incomes. I don't think it would matter as much to average Joe.
Or are you holding mutual funds that have an ETF share class? Many of Vanguard’s, but not all, are that way.

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pascalwager
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Re: ETF Novice

Post by pascalwager » Sun Jun 21, 2020 9:25 pm

Account: US and intl large value and small-cap, and emerging markets.

The account is $562k (down from $697k in January) and the new funds will be 14% of the account.

I'm going to wait until the distributions ex-date before acting--probably around the 26th.
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pascalwager
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Re: ETF Novice

Post by pascalwager » Mon Jun 22, 2020 9:58 am

Where do you watch the real-time pricing? Schwab has 15-minute prices.
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livesoft
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Re: ETF Novice

Post by livesoft » Mon Jun 22, 2020 10:24 am

pascalwager wrote:
Mon Jun 22, 2020 9:58 am
Where do you watch the real-time pricing? Schwab has 15-minute prices.
finance.yahoo.com has real-time prices for me, but also my tdameritrade.com has real-time pricing. It would be very unusual if Schwab did not provide real-time quote as one submitted an order or if one clicked on a button that said "update to latest" of something like that. wellstrade.com provides non-delayed info if one clicks on the button to get real-time info.
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DemoEngr
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Re: ETF Novice

Post by DemoEngr » Mon Jun 22, 2020 10:34 am

Use the schwab app StreetSmart Edge

senex
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Re: ETF Novice

Post by senex » Mon Jun 22, 2020 12:57 pm

pascalwager wrote:
Sun Jun 21, 2020 3:04 pm
I noticed that all of the ETF versions of the new funds show a history of zero capital gains. Is this an obvious reason to avoid the mutual fund version and, instead, purchase ETFs? All of the funds are passively managed Schwab funds.
I'm not sure that anyone has answered this question directly yet.

Yes, that is an obvious reason to choose an ETF over a Mutual Fund at most providers. (The exception is Vanguard, which has a patent that allows their Mutual Funds to also have effectively zero capital gain distributions. When the patent expires, presumably most companies will copy the Vanguard technique).

The reason for the discrepancy is a special tax ruling introduced to cut a Gordian knot of tax compliance issues related to the ETF create/redeem process. Mutual funds don't have a create/redeem process, so they don't benefit from the ruling (except Vanguard, whose patent related to share classes allows mutual funds to capture the benefit).

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Re: ETF Novice

Post by aristotelian » Mon Jun 22, 2020 1:11 pm

Yes, ETF's are more tax efficient, although for traditional Boglehead index funds the differences are negligible. If you are using the opportunity to get out of actively managed funds, yes, this can make a more significant difference. One thing to consider is future tax loss harvesting. Since ETF's from all firms are commission free these days, you have a lot of choices to hold (slightly) different positions in your taxable account to prevent conflict with purchases in your retirement accounts causing wash sales.

senex
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Re: ETF Novice

Post by senex » Mon Jun 22, 2020 1:25 pm

aristotelian wrote:
Mon Jun 22, 2020 1:11 pm
Yes, ETF's are more tax efficient, although for traditional Boglehead index funds the differences are negligible.
For some very specific funds (like Schwab's S&P500 or Total Stock Market) I've found this to be true -- cap gains distributions are generally several times smaller than dividend distributions.

But for other funds that are boglehead-ish (such as Schwab 1000, or Schwab Small Cap Index), the cap gains distributions can be up to 5x the annual dividends, which is substantial. http://hosted.rightprospectus.com/SF/Fu ... =808509855

So, it's best to check one's particular holdings.

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pascalwager
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Re: ETF Novice

Post by pascalwager » Tue Jun 23, 2020 5:39 pm

senex wrote:
Mon Jun 22, 2020 1:25 pm
aristotelian wrote:
Mon Jun 22, 2020 1:11 pm
Yes, ETF's are more tax efficient, although for traditional Boglehead index funds the differences are negligible.
For some very specific funds (like Schwab's S&P500 or Total Stock Market) I've found this to be true -- cap gains distributions are generally several times smaller than dividend distributions.

But for other funds that are boglehead-ish (such as Schwab 1000, or Schwab Small Cap Index), the cap gains distributions can be up to 5x the annual dividends, which is substantial. http://hosted.rightprospectus.com/SF/Fu ... =808509855

So, it's best to check one's particular holdings.
Thanks for the detailed answers (both posts). The ETFs I'm considering have never produced any capital gains, at least for the period shown.
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Topic Author
pascalwager
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Re: ETF Novice

Post by pascalwager » Tue Jun 23, 2020 5:52 pm

aristotelian wrote:
Mon Jun 22, 2020 1:11 pm
Yes, ETF's are more tax efficient, although for traditional Boglehead index funds the differences are negligible. If you are using the opportunity to get out of actively managed funds, yes, this can make a more significant difference. One thing to consider is future tax loss harvesting. Since ETF's from all firms are commission free these days, you have a lot of choices to hold (slightly) different positions in your taxable account to prevent conflict with purchases in your retirement accounts causing wash sales.
No, I have no active stock funds, unless you consider DFA funds active; but they have relatively low turnover rates.

The fund I want to sell is SWISX (EAFE index). I don't dislike it, but I don't want any broad market funds in this particular account (the Vanguard stock funds in my other accounts are all total market). This account is a stand-alone account with internal rebalancing.
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nanameg
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Re: ETF Novice

Post by nanameg » Tue Jun 23, 2020 7:23 pm

I ,too, am trying to evaluate ETF’s as a complete novice. I’ve changed to the brokerage platform at Vanguard which really seemed to be a non event. Maybe changing from mutual funds to ETF’s is another.

The advisor at PAS is fairly insistent that I make the change to ETF’s. It’s a topic to be covered in our next conversation in a few weeks.

He says they are cheaper than mutual funds and the cost will be going to zero eventually. I think fidelity has zero funds unless I misunderstood what I’ve seen here on the forum.

Is there any downside to changing from mutual funds to ETF’s? I have only four funds ..total us stock, total us bonds, international bonds and stocks...the typical PAS portfolio.

I MAY switch out of PAS down the line to a single fund of funds and I don’t want to make that more complicated by going to ETF’s now. I want to keep that option open.

nanameg
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Re: ETF Novice

Post by nanameg » Tue Jun 23, 2020 7:24 pm

All my accounts are tax advantaged. I will be investigating whether a Roth conversion makes sense as well. Again, I don’t want ETF’s to make that more complex either.

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pascalwager
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Re: ETF Novice

Post by pascalwager » Wed Jun 24, 2020 6:53 am

nanameg wrote:
Tue Jun 23, 2020 7:23 pm
I ,too, am trying to evaluate ETF’s as a complete novice. I’ve changed to the brokerage platform at Vanguard which really seemed to be a non event. Maybe changing from mutual funds to ETF’s is another.

The advisor at PAS is fairly insistent that I make the change to ETF’s. It’s a topic to be covered in our next conversation in a few weeks.

He says they are cheaper than mutual funds and the cost will be going to zero eventually. I think fidelity has zero funds unless I misunderstood what I’ve seen here on the forum.

Is there any downside to changing from mutual funds to ETF’s? I have only four funds ..total us stock, total us bonds, international bonds and stocks...the typical PAS portfolio.

I MAY switch out of PAS down the line to a single fund of funds and I don’t want to make that more complicated by going to ETF’s now. I want to keep that option open.
The Fidelity zero ER funds are regular mutual funds and are probably loss leaders.
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pascalwager
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Re: ETF Novice

Post by pascalwager » Fri Jun 26, 2020 3:57 pm

I'm probably going to forever avoid ETFs after what I learned today from Schwab, and I definitely would never have gotten into investing if ETFs had been the only investment vehicle in 1995.

I talked with three licensed brokers today and they told me that trades settle whether or not there's sufficient cash (even zero cash) in the settlement account. In my case the cash would not be "dry powder", but simply rebalancing money from the sale of a mutual fund to buy five ETFs. I want to make a simple exchange from a mutual fund to five new funds and not need to figure out how to come up with additional money, or end up not using all of it.

Now I see why Livesoft recommended doing one trade at a time, but that would require about 15 business days for five trades while each trade settles and you could continuously check your dwindling cash.

I'm surprised that even Vanguard seems to be encouraging the use of ETFs for prudent, passive investors as opposed to living-on-the-edge stock traders/gamblers.

livesoft
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Re: ETF Novice

Post by livesoft » Fri Jun 26, 2020 4:15 pm

I actually don't understand at all what you just wrote. Sorry.
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typical.investor
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Re: ETF Novice

Post by typical.investor » Fri Jun 26, 2020 4:44 pm

pascalwager wrote:
Fri Jun 26, 2020 3:57 pm
I'm probably going to forever avoid ETFs after what I learned today from Schwab, and I definitely would never have gotten into investing if ETFs had been the only investment vehicle in 1995.

I talked with three licensed brokers today and they told me that trades settle whether or not there's sufficient cash (even zero cash) in the settlement account. In my case the cash would not be "dry powder", but simply rebalancing money from the sale of a mutual fund to buy five ETFs. I want to make a simple exchange from a mutual fund to five new funds and not need to figure out how to come up with additional money, or end up not using all of it.

Now I see why Livesoft recommended doing one trade at a time, but that would require about 15 business days for five trades while each trade settles and you could continuously check your dwindling cash.

I'm surprised that even Vanguard seems to be encouraging the use of ETFs for prudent, passive investors as opposed to living-on-the-edge stock traders/gamblers.
After you place a trade, you will immediately know the price.

The available cash usually updates but sometimes it’s a little slow. Just calculate price by shares and subtract it from your available cash. Then do the next trade.

You can easily do five trades in a day. Done it many times.

Best,

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pascalwager
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Re: ETF Novice

Post by pascalwager » Fri Jun 26, 2020 5:39 pm

typical.investor wrote:
Fri Jun 26, 2020 4:44 pm
pascalwager wrote:
Fri Jun 26, 2020 3:57 pm
I'm probably going to forever avoid ETFs after what I learned today from Schwab, and I definitely would never have gotten into investing if ETFs had been the only investment vehicle in 1995.

I talked with three licensed brokers today and they told me that trades settle whether or not there's sufficient cash (even zero cash) in the settlement account. In my case the cash would not be "dry powder", but simply rebalancing money from the sale of a mutual fund to buy five ETFs. I want to make a simple exchange from a mutual fund to five new funds and not need to figure out how to come up with additional money, or end up not using all of it.

Now I see why Livesoft recommended doing one trade at a time, but that would require about 15 business days for five trades while each trade settles and you could continuously check your dwindling cash.

I'm surprised that even Vanguard seems to be encouraging the use of ETFs for prudent, passive investors as opposed to living-on-the-edge stock traders/gamblers.
After you place a trade, you will immediately know the price.

The available cash usually updates but sometimes it’s a little slow. Just calculate price by shares and subtract it from your available cash. Then do the next trade.

You can easily do five trades in a day. Done it many times.

Best,
OK, thanks. I must be missing something or mis-understanding. Back to the drawing board.

senex
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Re: ETF Novice

Post by senex » Fri Jun 26, 2020 5:44 pm

pascalwager wrote:
Fri Jun 26, 2020 5:39 pm
OK, thanks. I must be missing something or mis-understanding. Back to the drawing board.
I encourage you to not think or talk about settlement. It is very confusing, and adds almost no value to your life unless you work in some very particular parts of the financial industry.

When rebalancing, just pretend trades happen immediately (shares and money changes hands immediately), and your life will be way easier. You can do lots of round-trips intraday, and it will all work out. If you're trying to withdraw cash, you may have to wait, but if you're just rebalancing, you can use the simple mental model.

livesoft
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Re: ETF Novice

Post by livesoft » Fri Jun 26, 2020 5:51 pm

When you place your order to sell some mutual fund shares, the order is NOT executed right away and thus creates no cash to buy other things right away. You actually won't even know the exact amount of cash the that mutual fund order to sell will create for you until after the order is executed (if you sell a specific number of shares). This is unlike selling ETF shares which can happen immediately and with no guessing.

So after you submit your mutual fund order to sell shares, you should wait until the next morning to see how much money you have from selling. And the next morning you can start buying those ETF shares you want. You will see exactly how much money you spent buying shares for each separate order practically instantly. This is unlike mutual funds where even a buy order won't take place until the end of the market day and markets are closed.

Of course, with mutual funds you can buy in dollar amounts and not just in share amounts. Most people on this forum buy in dollar amounts. One can sell mutual funds in dollar amounts or in share amounts.
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pascalwager
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Re: ETF Novice

Post by pascalwager » Fri Jun 26, 2020 8:13 pm

livesoft wrote:
Fri Jun 26, 2020 5:51 pm
When you place your order to sell some mutual fund shares, the order is NOT executed right away and thus creates no cash to buy other things right away. You actually won't even know the exact amount of cash the that mutual fund order to sell will create for you until after the order is executed (if you sell a specific number of shares). This is unlike selling ETF shares which can happen immediately and with no guessing.

So after you submit your mutual fund order to sell shares, you should wait until the next morning to see how much money you have from selling. And the next morning you can start buying those ETF shares you want. You will see exactly how much money you spent buying shares for each separate order practically instantly. This is unlike mutual funds where even a buy order won't take place until the end of the market day and markets are closed.

Of course, with mutual funds you can buy in dollar amounts and not just in share amounts. Most people on this forum buy in dollar amounts. One can sell mutual funds in dollar amounts or in share amounts.
Schwab has a calculator that does allow you to effectively buy in dollar amounts by converting your dollar amount to shares. Works only for market orders.

Your second paragraph confirms and expands on what the brokers told me. I intend to wait until the next morning to see my cash amount, but they said I could also sell and buy during the same order, but might need to cover an "amount due" the next day if the cash came up short.

So, thanks. This is encouraging an understanding that the individual purchases are consuming the cash in a controlled, calculated, and transparent manner.

livesoft
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Re: ETF Novice

Post by livesoft » Fri Jun 26, 2020 8:25 pm

pascalwager wrote:
Fri Jun 26, 2020 8:13 pm
Your second paragraph confirms and expands on what the brokers told me. I intend to wait until the next morning to see my cash amount, but they said I could also sell and buy during the same order, but might need to cover an "amount due" the next day if the cash came up short.
You could have reasonably thought that you could have used 90% of the expected value of the next morning's cash without too much worry.
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Re: ETF Novice

Post by grabiner » Sat Jun 27, 2020 12:29 pm

pascalwager wrote:
Fri Jun 26, 2020 8:13 pm
livesoft wrote:
Fri Jun 26, 2020 5:51 pm

Of course, with mutual funds you can buy in dollar amounts and not just in share amounts. Most people on this forum buy in dollar amounts. One can sell mutual funds in dollar amounts or in share amounts.
Schwab has a calculator that does allow you to effectively buy in dollar amounts by converting your dollar amount to shares. Works only for market orders.
I would expect this to work only for limit orders. If you have $10,000 in your account and place an order at $100.00, you can buy 100 shares. But if your market order fills at $100.01, you can only buy 99 shares.
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Re: ETF Novice

Post by nanameg » Sat Jun 27, 2020 2:30 pm

I’m way out of my league here and wouldn’t even pay attention to ETF’s if I wasn’t being “ forced “ to by PAS. I’ll have to clarify again with him in a few weeks but I’m fairly confident he told me clients of PAS are going to be required to use ETF’s.

He described it as being cheaper and that’s why Vanguard is moving to them and that eventually the expense ratio for ETF’s will be zero.

Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.

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Re: ETF Novice

Post by grabiner » Sat Jun 27, 2020 6:59 pm

nanameg wrote:
Sat Jun 27, 2020 2:30 pm
I’m way out of my league here and wouldn’t even pay attention to ETF’s if I wasn’t being “ forced “ to by PAS. I’ll have to clarify again with him in a few weeks but I’m fairly confident he told me clients of PAS are going to be required to use ETF’s.

He described it as being cheaper and that’s why Vanguard is moving to them and that eventually the expense ratio for ETF’s will be zero.
Vanguard runs everything at cost, so it will never have zero expenses on its ETFs. (Vanguard ETFs do often have positive tracking error; despite its expenses, VTI has matched its index over the last ten years.) For-profit providers could have some ETFs with zero expense as loss-leaders, as Fidelity does with its Zero mutual funds.
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Re: ETF Novice

Post by livesoft » Sun Jun 28, 2020 9:59 am

nanameg wrote:
Sat Jun 27, 2020 2:30 pm
Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
I don't think it is a complexity. It is an unfamiliarity. Driving a car is very very complex. I'm not sure if you are able to drive a car, but for people familiar with driving a car, I doubt they would call it a complexity anymore.
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Re: ETF Novice

Post by pascalwager » Sun Jun 28, 2020 11:52 am

grabiner wrote:
Sat Jun 27, 2020 12:29 pm
pascalwager wrote:
Fri Jun 26, 2020 8:13 pm
livesoft wrote:
Fri Jun 26, 2020 5:51 pm

Of course, with mutual funds you can buy in dollar amounts and not just in share amounts. Most people on this forum buy in dollar amounts. One can sell mutual funds in dollar amounts or in share amounts.
Schwab has a calculator that does allow you to effectively buy in dollar amounts by converting your dollar amount to shares. Works only for market orders.
I would expect this to work only for limit orders. If you have $10,000 in your account and place an order at $100.00, you can buy 100 shares. But if your market order fills at $100.01, you can only buy 99 shares.
The calculator is operable only if you're doing a market order, but there is a disclaimer.

nanameg
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Re: ETF Novice

Post by nanameg » Sun Jun 28, 2020 12:35 pm

livesoft wrote:
Sun Jun 28, 2020 9:59 am
nanameg wrote:
Sat Jun 27, 2020 2:30 pm
Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
I don't think it is a complexity. It is an unfamiliarity. Driving a car is very very complex. I'm not sure if you are able to drive a car, but for people familiar with driving a car, I doubt they would call it a complexity anymore.
Perhaps that is true, not worthy arguing the point but driving a car confers benefits on someone who learns to drive.I don’t see yet how owning ETF’s confer any benefits to a buy and hold investor. I’m open it learning what they are. I’ve heard the argument that u can see the price when u buy and don’t need to wait till the end of the day but that is a trivial point to me. Are there other advantages?

I’ve looked at the comparison of ETF’s to mutual funds on the Vanguard site and didn’t come away with much. I will look again but maybe something else is more useful to read?

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Re: ETF Novice

Post by ChrisBenn » Sun Jun 28, 2020 1:11 pm

nanameg wrote:
Sun Jun 28, 2020 12:35 pm
livesoft wrote:
Sun Jun 28, 2020 9:59 am
nanameg wrote:
Sat Jun 27, 2020 2:30 pm
Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
I don't think it is a complexity. It is an unfamiliarity. Driving a car is very very complex. I'm not sure if you are able to drive a car, but for people familiar with driving a car, I doubt they would call it a complexity anymore.
Perhaps that is true, not worthy arguing the point but driving a car confers benefits on someone who learns to drive.I don’t see yet how owning ETF’s confer any benefits to a buy and hold investor. I’m open it learning what they are. I’ve heard the argument that u can see the price when u buy and don’t need to wait till the end of the day but that is a trivial point to me. Are there other advantages?

I’ve looked at the comparison of ETF’s to mutual funds on the Vanguard site and didn’t come away with much. I will look again but maybe something else is more useful to read?
1 - Brokerage portability; if you want to move brokerages you can transfer without liquidation, as well as risk of fees associated with continued purchases. For MF the portability and fees situation is highly variable.

2 - Tax efficiency (other than vanguard funds) - if you are holding in taxable.

3 - Pricing of low liquidity assests; witness how bond etf's vs mf handled the recent bond liquidity crisis. MF, due to regulatory issues, had to act as if the bonds could be sold for more than they actually could. If you were withdrawing this was great - all other fundholders were subsidizing your above market prices; if you were in accumulation it was bad - you were buying assets for more than they were worth.

I think the taxable one is a show stopper - but that only applies to funds other than vanguard.

The portability is of zero utility unless you need it -- then it's nice.

The pricing situation turned out not to be a huge issue as the fed helped fix it - but I still preferr the etf performance profile (best effort at actual market price)

User avatar
Chip Munk
Posts: 154
Joined: Fri Feb 22, 2019 4:01 pm

Re: ETF Novice

Post by Chip Munk » Sun Jun 28, 2020 1:15 pm

nanameg wrote:
Sat Jun 27, 2020 2:30 pm
I’m way out of my league here and wouldn’t even pay attention to ETF’s if I wasn’t being “ forced “ to by PAS. I’ll have to clarify again with him in a few weeks but I’m fairly confident he told me clients of PAS are going to be required to use ETF’s.

He described it as being cheaper and that’s why Vanguard is moving to them and that eventually the expense ratio for ETF’s will be zero.

Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
I've been in the PAS program for a few years. Some time last year, my advisor talked to me about possibly converting my mutual funds to ETFs to take advantage of the lower ER. For various reasons, I did not want to do it at the time and he's never mentioned it again. So at least in my case, I have not been forced or required to use ETFs.

Topic Author
pascalwager
Posts: 1801
Joined: Mon Oct 31, 2011 8:36 pm

Re: ETF Novice

Post by pascalwager » Sun Jun 28, 2020 3:20 pm

nanameg wrote:
Sun Jun 28, 2020 12:35 pm
livesoft wrote:
Sun Jun 28, 2020 9:59 am
nanameg wrote:
Sat Jun 27, 2020 2:30 pm
Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
ire-r
I don't think it is a complexity. It is an unfamiliarity. Driving a car is very very complex. I'm not sure if you are able to drive a car, but for people familiar with driving a car, I doubt they would call it a complexity anymore.
Perhaps that is true, not worthy arguing the point but driving a car confers benefits on someone who learns to drive.I don’t see yet how owning ETF’s confer any benefits to a buy and hold investor. I’m open it learning what they are. I’ve heard the argument that u can see the price when u buy and don’t need to wait till the end of the day but that is a trivial point to me. Are there other advantages?

I’ve looked at the comparison of ETF’s to mutual funds on the Vanguard site and didn’t come away with much. I will look again but maybe something else is more useful to read?
Look at capital gains history under "Distributions" for both types of funds if used in taxable. For Schwab, the decision was easy for me. Their ETFs showed absolutely no capital gains at all, but their mutual funds did and with fairly high turnovers.

nanameg
Posts: 391
Joined: Fri Mar 20, 2020 10:57 am

Re: ETF Novice

Post by nanameg » Sun Jun 28, 2020 3:43 pm

ChrisBenn wrote:
Sun Jun 28, 2020 1:11 pm
nanameg wrote:
Sun Jun 28, 2020 12:35 pm
livesoft wrote:
Sun Jun 28, 2020 9:59 am
nanameg wrote:
Sat Jun 27, 2020 2:30 pm
Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
I don't think it is a complexity. It is an unfamiliarity. Driving a car is very very complex. I'm not sure if you are able to drive a car, but for people familiar with driving a car, I doubt they would call it a complexity anymore.
Perhaps that is true, not worthy arguing the point but driving a car confers benefits on someone who learns to drive.I don’t see yet how owning ETF’s confer any benefits to a buy and hold investor. I’m open it learning what they are. I’ve heard the argument that u can see the price when u buy and don’t need to wait till the end of the day but that is a trivial point to me. Are there other advantages?

I’ve looked at the comparison of ETF’s to mutual funds on the Vanguard site and didn’t come away with much. I will look again but maybe something else is more useful to read?
1 - Brokerage portability; if you want to move brokerages you can transfer without liquidation, as well as risk of fees associated with continued purchases. For MF the portability and fees situation is highly variable.

2 - Tax efficiency (other than vanguard funds) - if you are holding in taxable.

3 - Pricing of low liquidity assests; witness how bond etf's vs mf handled the recent bond liquidity crisis. MF, due to regulatory issues, had to act as if the bonds could be sold for more than they actually could. If you were withdrawing this was great - all other fundholders were subsidizing your above market prices; if you were in accumulation it was bad - you were buying assets for more than they were worth.

I think the taxable one is a show stopper - but that only applies to funds other than vanguard.

The portability is of zero utility unless you need it -- then it's nice.

The pricing situation turned out not to be a huge issue as the fed helped fix it - but I still preferr the etf performance profile (best effort at actual market price)
And why is the tax efficiency only applicable to funds other than Vanguard?

nanameg
Posts: 391
Joined: Fri Mar 20, 2020 10:57 am

Re: ETF Novice

Post by nanameg » Sun Jun 28, 2020 3:44 pm

Chip Munk wrote:
Sun Jun 28, 2020 1:15 pm
nanameg wrote:
Sat Jun 27, 2020 2:30 pm
I’m way out of my league here and wouldn’t even pay attention to ETF’s if I wasn’t being “ forced “ to by PAS. I’ll have to clarify again with him in a few weeks but I’m fairly confident he told me clients of PAS are going to be required to use ETF’s.

He described it as being cheaper and that’s why Vanguard is moving to them and that eventually the expense ratio for ETF’s will be zero.

Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
I've been in the PAS program for a few years. Some time last year, my advisor talked to me about possibly converting my mutual funds to ETFs to take advantage of the lower ER. For various reasons, I did not want to do it at the time and he's never mentioned it again. So at least in my case, I have not been forced or required to use ETFs.
Interesting. Maybe I misunderstood the advisor. I’ll clarify in our next conversation.

nanameg
Posts: 391
Joined: Fri Mar 20, 2020 10:57 am

Re: ETF Novice

Post by nanameg » Sun Jun 28, 2020 3:45 pm

pascalwager wrote:
Sun Jun 28, 2020 3:20 pm
nanameg wrote:
Sun Jun 28, 2020 12:35 pm
livesoft wrote:
Sun Jun 28, 2020 9:59 am
nanameg wrote:
Sat Jun 27, 2020 2:30 pm
Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
ire-r
I don't think it is a complexity. It is an unfamiliarity. Driving a car is very very complex. I'm not sure if you are able to drive a car, but for people familiar with driving a car, I doubt they would call it a complexity anymore.
Perhaps that is true, not worthy arguing the point but driving a car confers benefits on someone who learns to drive.I don’t see yet how owning ETF’s confer any benefits to a buy and hold investor. I’m open it learning what they are. I’ve heard the argument that u can see the price when u buy and don’t need to wait till the end of the day but that is a trivial point to me. Are there other advantages?

I’ve looked at the comparison of ETF’s to mutual funds on the Vanguard site and didn’t come away with much. I will look again but maybe something else is more useful to read?
Look at capital gains history under "Distributions" for both types of funds if used in taxable. For Schwab, the decision was easy for me. Their ETFs showed absolutely no capital gains at all, but their mutual funds did and with fairly high turnovers.
Ok.Thanks.

ChrisBenn
Posts: 324
Joined: Mon Aug 05, 2019 7:56 pm

Re: ETF Novice

Post by ChrisBenn » Sun Jun 28, 2020 5:29 pm

nanameg wrote:
Sun Jun 28, 2020 3:43 pm
ChrisBenn wrote:
Sun Jun 28, 2020 1:11 pm
nanameg wrote:
Sun Jun 28, 2020 12:35 pm
livesoft wrote:
Sun Jun 28, 2020 9:59 am
nanameg wrote:
Sat Jun 27, 2020 2:30 pm
Its another layer of complexity for me and if my understanding that clients of PAS will be required to use them it will most likely be a deal breaker. I’m already uncertain about PAS as it is.
I don't think it is a complexity. It is an unfamiliarity. Driving a car is very very complex. I'm not sure if you are able to drive a car, but for people familiar with driving a car, I doubt they would call it a complexity anymore.
Perhaps that is true, not worthy arguing the point but driving a car confers benefits on someone who learns to drive.I don’t see yet how owning ETF’s confer any benefits to a buy and hold investor. I’m open it learning what they are. I’ve heard the argument that u can see the price when u buy and don’t need to wait till the end of the day but that is a trivial point to me. Are there other advantages?

I’ve looked at the comparison of ETF’s to mutual funds on the Vanguard site and didn’t come away with much. I will look again but maybe something else is more useful to read?
1 - Brokerage portability; if you want to move brokerages you can transfer without liquidation, as well as risk of fees associated with continued purchases. For MF the portability and fees situation is highly variable.

2 - Tax efficiency (other than vanguard funds) - if you are holding in taxable.

3 - Pricing of low liquidity assests; witness how bond etf's vs mf handled the recent bond liquidity crisis. MF, due to regulatory issues, had to act as if the bonds could be sold for more than they actually could. If you were withdrawing this was great - all other fundholders were subsidizing your above market prices; if you were in accumulation it was bad - you were buying assets for more than they were worth.

I think the taxable one is a show stopper - but that only applies to funds other than vanguard.

The portability is of zero utility unless you need it -- then it's nice.

The pricing situation turned out not to be a huge issue as the fed helped fix it - but I still preferr the etf performance profile (best effort at actual market price)
And why is the tax efficiency only applicable to funds other than Vanguard?
https://www.investopedia.com/how-vangua ... ds-4686985

(specifically vanguard mutual funds are fine to hold in taxable; others would more efficiently be held as etfs)

Topic Author
pascalwager
Posts: 1801
Joined: Mon Oct 31, 2011 8:36 pm

Re: ETF Novice

Post by pascalwager » Mon Jun 29, 2020 2:41 pm

I sold mutual fund SWISX today about 38 minutes before market closing. I followed some similar ETFs all day to be sure the daily gain didn't exceed 1.41%--my criterion for selling. I didn't want to generate any overall net, realized, taxable short-term gains on the year.

This was the first time I've made a transaction in the account since Q4 2011 when I separated from an advisor and assumed account management.

Tomorrow I'll probably do the five ETF purchases from the ~$80k I expect to see in my Schwab cash account.

Topic Author
pascalwager
Posts: 1801
Joined: Mon Oct 31, 2011 8:36 pm

Re: ETF Novice

Post by pascalwager » Tue Jun 30, 2020 11:42 am

I completed the five ETF purchases today and everything worked out to perfection. I used market orders and the shares calculator and ended up with $34 remaining in cash. I may whittle that down by buying one more share of something.

After every purchase, the cash updated immediately and so did my positions screen. I like the Schwab trading software. Now I need to get used to my Google spreadsheet updating continuously throughout the day.

I doubt that I would have had the nerve to take this step without your helpful posts, so thanks to everyone!

typical.investor
Posts: 2001
Joined: Mon Jun 11, 2018 3:17 am

Re: ETF Novice

Post by typical.investor » Tue Jun 30, 2020 5:56 pm

pascalwager wrote:
Tue Jun 30, 2020 11:42 am
I completed the five ETF purchases today and everything worked out to perfection. I used market orders and the shares calculator and ended up with $34 remaining in cash. I may whittle that down by buying one more share of something.

After every purchase, the cash updated immediately and so did my positions screen. I like the Schwab trading software. Now I need to get used to my Google spreadsheet updating continuously throughout the day.

I doubt that I would have had the nerve to take this step without your helpful posts, so thanks to everyone!
Great! Glad it worked out!

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