What is the advantage of Mutual Funds over ETFS?
-
- Posts: 131
- Joined: Fri Jun 06, 2014 12:31 am
What is the advantage of Mutual Funds over ETFS?
Hello,
I don't fully understand the ETF vs Mutual Fund argument. Personally, I only have mutual funds. I've seen discussions where people say they don't need what ETFS provide because they don't need to do things like trade mid-day, etc etc. I think I understand what some of the advantages of ETFS is over Mutual funds. But what do Mutual funds have on ETFS? It seems that expense ratio is usually lower with the ETF, or possibly equal if you have admiral shares in the ETF. What is the case for choosing mutual funds over ETFS (advantage with mutual funds, disadvantage with ETFS). For the sake of argument, I'm relating this to scenarios when you know what fund you want (VTSAX or VTI, for example). Thanks.
I don't fully understand the ETF vs Mutual Fund argument. Personally, I only have mutual funds. I've seen discussions where people say they don't need what ETFS provide because they don't need to do things like trade mid-day, etc etc. I think I understand what some of the advantages of ETFS is over Mutual funds. But what do Mutual funds have on ETFS? It seems that expense ratio is usually lower with the ETF, or possibly equal if you have admiral shares in the ETF. What is the case for choosing mutual funds over ETFS (advantage with mutual funds, disadvantage with ETFS). For the sake of argument, I'm relating this to scenarios when you know what fund you want (VTSAX or VTI, for example). Thanks.
Re: What is the advantage of Mutual Funds over ETFS?
There is a bogleheads wiki article with a full and clear explanation that has been crafted carefully to answer those exact questions:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
-
- Posts: 131
- Joined: Fri Jun 06, 2014 12:31 am
Re: What is the advantage of Mutual Funds over ETFS?
Livesoft,
That is very informational, and nicely provides the differences between the two. However, for some reason I'm still not seeing the argument for mutual funds over ETFS. I've gathered that
-ETFS are apparently slightly more tax efficient, even though neither are bad in this regard
-ETFS Allow a little more flexibility (which I'm aware many bogleheads don't need and have no interest in)
I guess I'm looking for an argument in favor of mutual funds besides "I don't need to trade mid-day". So why not just buy and hold an ETF? Is this a matter of complete preference and it doesnt really matter. Sorry if I am being thick-headed. I just don't see the advantage the Mutual fund has over the ETF, generally speaking.
That is very informational, and nicely provides the differences between the two. However, for some reason I'm still not seeing the argument for mutual funds over ETFS. I've gathered that
-ETFS are apparently slightly more tax efficient, even though neither are bad in this regard
-ETFS Allow a little more flexibility (which I'm aware many bogleheads don't need and have no interest in)
I guess I'm looking for an argument in favor of mutual funds besides "I don't need to trade mid-day". So why not just buy and hold an ETF? Is this a matter of complete preference and it doesnt really matter. Sorry if I am being thick-headed. I just don't see the advantage the Mutual fund has over the ETF, generally speaking.
Re: What is the advantage of Mutual Funds over ETFS?
Well shoot- it's really laid out nicely in that wiki article. But I'm feeling pedantic so I'll list the Mutual Fund benefits:
- No commission on mutual funds when bought at originating firm
Mutual funds trade at NAV--no bid/ask spread
Shorter settlement time--same day or next day, as opposed to 3-day for ETFs
Bought or sold in single frictionless transaction in whole $ amounts
Suitable for auto-investing (my personal favorite).
Can be bought and sold in fractional shares.
More choices of mutual funds, especially active or balanced funds.
Re: What is the advantage of Mutual Funds over ETFS?
Note, though, that Vanguard's index mutual funds are just as tax efficient as an ETF for the reason detailed in the article.. In practice, perfectly tax efficient after dividends, i.e. no capital gains distributions.SpartanBull wrote: -ETFS are apparently slightly more tax efficient, even though neither are bad in this regard
The biggest argument for me is they are easier to trade, one can simply treat them as a bank account of sorts and move money in whenever one has money to invest without regards to time of the day, spread etc, whereas the ETF process is more involved. I have a longer rant about this here: viewtopic.php?t=154136#p2312253 . It's not a huge deal and I have both due to account logistics, but I do prefer mutual funds for this reason and I'm more likely to recommend them particularly for beginners.SpartanBull wrote: I guess I'm looking for an argument in favor of mutual funds besides "I don't need to trade mid-day". So why not just buy and hold an ETF? Is this a matter of complete preference and it doesnt really matter. Sorry if I am being thick-headed. I just don't see the advantage the Mutual fund has over the ETF, generally speaking.
Re: What is the advantage of Mutual Funds over ETFS?
I completely argree. And I have a major gripe with the wiki on this, because the Trading mechanics doesn't even begin to describe the enormous difference in re-balancing ease with mutual funds compared to ETFs.ogd wrote:The biggest argument for me is they are easier to trade, one can simply treat them as a bank account of sorts and move money in whenever one has money to invest without regards to time of the day, spread etc, whereas the ETF process is more involved. I have a longer rant about this here: viewtopic.php?t=154136#p2312253 . It's not a huge deal and I have both due to account logistics, but I do prefer mutual funds for this reason and I'm more likely to recommend them particularly for beginners.SpartanBull wrote: I guess I'm looking for an argument in favor of mutual funds besides "I don't need to trade mid-day". So why not just buy and hold an ETF? Is this a matter of complete preference and it doesnt really matter. Sorry if I am being thick-headed. I just don't see the advantage the Mutual fund has over the ETF, generally speaking.
SpartanBull, if you are asking this question, you have obviously not had the "pleasure" of re-balancing a slice-and-dice portfolio across multiple accounts. Re-balancing is an efficient, trivial matter with mutual funds, but a time-consuming and tedious chore with ETFs. There's simply no comparison. (We're doing our readers no service by not getting them to think this re-balancing thing through before they charge into ETFs.)
There's that, and the fact that trading ETFs is best accomplished while the market is open. That's a huge restriction for those of us that work during those hours. Mutual fund trading can be accomplished effortlessly any time of the day or night.
I've gone on many rants about this, so I'll just recycle an old post with links to several threads that you can peruse at your leisure.
viewtopic.php?p=2841484#p2841484
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
Re: What is the advantage of Mutual Funds over ETFS?
We seem to have more questions about rebalancing with mutual funds than with ETFs.
Re: What is the advantage of Mutual Funds over ETFS?
No, it is *not* a "full" explanation, in that it fails to identify — or make clear — at least two major drawbacks with ETFs: restricted hours during which trading is advised; and complex, time-consuming re-balancing.livesoft wrote:There is a bogleheads wiki article with a full and clear explanation that has been crafted carefully to answer those exact questions:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
Re: What is the advantage of Mutual Funds over ETFS?
I have shown that submitting ETF market orders for execution at the opening cross works as pretty well without bid/ask spreads.
Re: What is the advantage of Mutual Funds over ETFS?
iceport: having written or restructured much of the article (with livesoft here the other major contributor), I actually don't think this is a factor worth mentioning in an article mostly targetted towards beginners, for the following reasons:iceport wrote:I completely argree. And I have a major gripe with the wiki on this, because the Trading mechanics doesn't even begin to describe the enormous difference in re-balancing ease with mutual funds compared to ETFs.
SpartanBull, if you are asking this question, you have obviously not had the "pleasure" of re-balancing a slice-and-dice portfolio across multiple accounts. Re-balancing is an efficient, trivial matter with mutual funds, but a time-consuming and tedious chore with ETFs. There's simply no comparison. (We're doing our readers no service by not getting them to think this re-balancing thing through before they charge into ETFs.)
1) Holding ETFs that get regularly rebalanced in multiple accounts is a self-inflicted complexity problem. The cure for that is simple: consolidate. It's very unlikely that a beginner would do this.
2) Rebalancing between ETFs in a single account is not much harder than it is between mutual funds, with only the usual "Trading mechanics" objections.
3) Rebalancing between mutual funds in multiple accounts is also significantly more complex than in a single account, and also a self-inflicted problem.
4) If one were to replace ETFs with mutual funds in such a situation, one would run into the problem that Vanguard Admiral shares are not available almost anywhere else but Vanguard (and the ETF conversion option is definitely Vanguard-only). So the advantages of ETFs that Vanguard's funds mostly erase -- cost, tax efficiency, freedom to migrate -- would begin to weigh in more.
This, on the other hand, is probably worth noting in Trading mechanics. Livesoft?iceport wrote:There's that, and the fact that trading ETFs is best accomplished while the market is open. That's a huge restriction for those of us that work during those hours. Mutual fund trading can be accomplished effortlessly any time of the day or night.
Re: What is the advantage of Mutual Funds over ETFS?
If you are in the accumulation phase like I am, MF wins out over ETFs.
I have a periodic (monthly) amount withdrawn from my bank account, and invested in the funds.
I don't have to worry about setting market/limit orders, have access to my account during trading period, getting motivated to time the market, etc.
Every month $x goes from my bank, and funds get bought. Simple.
I have a periodic (monthly) amount withdrawn from my bank account, and invested in the funds.
I don't have to worry about setting market/limit orders, have access to my account during trading period, getting motivated to time the market, etc.
Every month $x goes from my bank, and funds get bought. Simple.
- Earl Lemongrab
- Posts: 7270
- Joined: Tue Jun 10, 2014 1:14 am
Re: What is the advantage of Mutual Funds over ETFS?
Outside of the CITs I hold in my 401(k) all of my investments are ETFs. So you can see that for me standard mutual funds don't have any advantages.
Earl
Earl
- nisiprius
- Advisory Board
- Posts: 52105
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: What is the advantage of Mutual Funds over ETFS?
There isn't any big difference. However, this is my personal list of the small advantages that mutual funds have for me. Since ETFs have no advantages for me, I used mutual funds.
1) Ability to place an order any time. While I was working, I always felt that it was slightly disrespectful to my employer to be placing investment orders during working orders--and this was especially true of ETFs, which I had to keep an eye on, whereas mutual fund orders are "fire-and-forget."
2) Ease of purchasing or redeeming any desired specific dollar value. For example, I recently redeemed shares in order to buy $5,000 worth of series I savings bonds. I was able to redeem the right amount to yield $5,000.00 to the penny after tax withholding. With an ETF I'd have had to round up to a whole number of shares... and, if it was very close, say $5,001.00, I would have had to sell an extra share just to be sure, since with an ETF you are never exactly certain of the number of dollars you will receive. So you end up selling fifty, sixty, seventy dollars more than you want to. It's completely inconsequential, but it's annoying.
3) Ability to set up automatic exchanges between funds. Again it's not important, but I use this feature. If I decide to rebalance I don't do it in a single exchange, I set up an automatic exchange to do it in four or six smaller exchanges at intervals of a week or a month. Why? Because that makes me happy, that's why.
4) The ETF gurus tell me that I must use limit orders, never market orders. However, the three or four times I have bought or sold ETFs using limit orders, I have never been able to get them to execute, even when I set my bid at the full "ask" price. I always ended up using a market order anyway just to get it done. I still don't know what I was doing wrong, why they didn't execute, or what I could have done differently.
5) I prefer knowing that Vanguard will calculate a NAV for me--which I trust them to do--and give me that price at close of trade, rather than relying on market forces to do it for me. I still don't entirely understand why ETFs ever transact at prices that are different from the NAV, but they do. The gurus tend to say things like "this isn't usually a problem for big ETFs on normal trading days." OK. According to Rick Ferri this can occasionally be important. In Solving the corporate bond ETF problem, According to Ferri,
1) Ability to place an order any time. While I was working, I always felt that it was slightly disrespectful to my employer to be placing investment orders during working orders--and this was especially true of ETFs, which I had to keep an eye on, whereas mutual fund orders are "fire-and-forget."
2) Ease of purchasing or redeeming any desired specific dollar value. For example, I recently redeemed shares in order to buy $5,000 worth of series I savings bonds. I was able to redeem the right amount to yield $5,000.00 to the penny after tax withholding. With an ETF I'd have had to round up to a whole number of shares... and, if it was very close, say $5,001.00, I would have had to sell an extra share just to be sure, since with an ETF you are never exactly certain of the number of dollars you will receive. So you end up selling fifty, sixty, seventy dollars more than you want to. It's completely inconsequential, but it's annoying.
3) Ability to set up automatic exchanges between funds. Again it's not important, but I use this feature. If I decide to rebalance I don't do it in a single exchange, I set up an automatic exchange to do it in four or six smaller exchanges at intervals of a week or a month. Why? Because that makes me happy, that's why.
4) The ETF gurus tell me that I must use limit orders, never market orders. However, the three or four times I have bought or sold ETFs using limit orders, I have never been able to get them to execute, even when I set my bid at the full "ask" price. I always ended up using a market order anyway just to get it done. I still don't know what I was doing wrong, why they didn't execute, or what I could have done differently.
5) I prefer knowing that Vanguard will calculate a NAV for me--which I trust them to do--and give me that price at close of trade, rather than relying on market forces to do it for me. I still don't entirely understand why ETFs ever transact at prices that are different from the NAV, but they do. The gurus tend to say things like "this isn't usually a problem for big ETFs on normal trading days." OK. According to Rick Ferri this can occasionally be important. In Solving the corporate bond ETF problem, According to Ferri,
6) I am also paranoid enough to wonder whether a small investor trading odd lots of ETFs is somehow getting winkled on bid-ask spreads, although I have no reason to think this is happening. In contrast, I do not worry about whether Vanguard gets a good price when it transacts on the stocks it is holding in its mutual funds.This brings us to the two ways to solve the bond ETF discount problem:
- Don’t buy bond ETFs. Stick with traditional open-ended funds that trade at NAV at the end of the day. You won’t have to worry about ETF price swings due to liquidity issues and other matters.
- If you do decide to invest in bond ETFs, don’t trade them during volatile days. Wait until prices recover before putting in your order. In the words of someone much wiser than me, this too shall pass.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: What is the advantage of Mutual Funds over ETFS?
Hi ogd,ogd wrote:iceport: having written or restructured much of the article (with livesoft here the other major contributor), I actually don't think this is a factor worth mentioning in an article mostly targetted towards beginners, for the following reasons:iceport wrote:I completely argree. And I have a major gripe with the wiki on this, because the Trading mechanics doesn't even begin to describe the enormous difference in re-balancing ease with mutual funds compared to ETFs.
SpartanBull, if you are asking this question, you have obviously not had the "pleasure" of re-balancing a slice-and-dice portfolio across multiple accounts. Re-balancing is an efficient, trivial matter with mutual funds, but a time-consuming and tedious chore with ETFs. There's simply no comparison. (We're doing our readers no service by not getting them to think this re-balancing thing through before they charge into ETFs.)
1) Holding ETFs that get regularly rebalanced in multiple accounts is a self-inflicted complexity problem. The cure for that is simple: consolidate. It's very unlikely that a beginner would do this. ◄ An investor's choice of asset allocation is a personal decision, and not everyone chooses a 3-fund portfolio. Even for those that do, there are often 6 different accounts or more between a married couple with retirement plans at work, IRAs, and taxable accounts. Calling that reality "self-inflicted" is not fair.
2) Rebalancing between ETFs in a single account is not much harder than it is between mutual funds, with only the usual "Trading mechanics" objections. ◄ It's a rare case, indeed, to find any investor with the luxury of a single account portfolio.
3) Rebalancing between mutual funds in multiple accounts is also significantly more complex than in a single account, and also a self-inflicted problem. ◄ Well, I could quibble about how much more complex it is, but I think we can both agree moving to an ETF re-balancing scenario across multiple accounts is way more complex than the equivalent mutual fund scenario.
4) If one were to replace ETFs with mutual funds in such a situation, one would run into the problem that Vanguard Admiral shares are not available almost anywhere else but Vanguard (and the ETF conversion option is definitely Vanguard-only). So the advantages of ETFs that Vanguard's funds mostly erase -- cost, tax efficiency, freedom to migrate -- would begin to weigh in more. ◄ That's a valid but separate issue that should be covered elsewhere.
I hope my criticism of the wiki article did not offend, as I didn't even check the author(s).
I do, however, respectfully disagree with several of your points above, as indicated.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
Re: What is the advantage of Mutual Funds over ETFS?
I would say that in a lot of cases, 3) is more inflicted by the tax code than self-inflicted. Since I can only put so much into any account, I have a 401k, IRA, HSA, and taxable account. The 401k has a different class of funds, and for the taxable, I have to consider the tax implications of what I put there. If you're sliced and diced to the nth degree, then sure, that's self-inflicted, but even with an approximate 3-fund portfolio rebalancing is a multi step process.ogd wrote:iceport: having written or restructured much of the article (with livesoft here the other major contributor), I actually don't think this is a factor worth mentioning in an article mostly targetted towards beginners, for the following reasons:iceport wrote:I completely argree. And I have a major gripe with the wiki on this, because the Trading mechanics doesn't even begin to describe the enormous difference in re-balancing ease with mutual funds compared to ETFs.
SpartanBull, if you are asking this question, you have obviously not had the "pleasure" of re-balancing a slice-and-dice portfolio across multiple accounts. Re-balancing is an efficient, trivial matter with mutual funds, but a time-consuming and tedious chore with ETFs. There's simply no comparison. (We're doing our readers no service by not getting them to think this re-balancing thing through before they charge into ETFs.)
1) Holding ETFs that get regularly rebalanced in multiple accounts is a self-inflicted complexity problem. The cure for that is simple: consolidate. It's very unlikely that a beginner would do this.
2) Rebalancing between ETFs in a single account is not much harder than it is between mutual funds, with only the usual "Trading mechanics" objections.
3) Rebalancing between mutual funds in multiple accounts is also significantly more complex than in a single account, and also a self-inflicted problem.
4) If one were to replace ETFs with mutual funds in such a situation, one would run into the problem that Vanguard Admiral shares are not available almost anywhere else but Vanguard (and the ETF conversion option is definitely Vanguard-only). So the advantages of ETFs that Vanguard's funds mostly erase -- cost, tax efficiency, freedom to migrate -- would begin to weigh in more.
This, on the other hand, is probably worth noting in Trading mechanics. Livesoft?iceport wrote:There's that, and the fact that trading ETFs is best accomplished while the market is open. That's a huge restriction for those of us that work during those hours. Mutual fund trading can be accomplished effortlessly any time of the day or night.
Anyway, I do mutual funds just for the simplicity. When I want to buy something, I log in, click two or three buttons, and I'm done in 30 seconds. During the day when the markets are open, I'm usually working and I have better things to do than try and get ETF trades through.
Re: What is the advantage of Mutual Funds over ETFS?
It was my impression that these are accounts that one can move money between, not accounts with hard barriers. If one doesn't actually move money (where indeed the cash availability from ETF sales would be a major problem), then I fail to see how it's much harder with ETFs. Just the usual issues listed in Trading mechanics.iceport wrote:◄ An investor's choice of asset allocation is a personal decision, and not everyone chooses a 3-fund portfolio. Even for those that do, there are often 6 different accounts or more between a married couple with retirement plans at work, IRAs, and taxable accounts. Calling that reality "self-inflicted" is not fair.ogd wrote:1) Holding ETFs that get regularly rebalanced in multiple accounts is a self-inflicted complexity problem. The cure for that is simple: consolidate. It's very unlikely that a beginner would do this.
Now if one has several fungible accounts, e.g. multiple taxable or multiple IRAs owned by the same entity, then it is fair to call it a self-inflicted problem that can be rectified. The greatest decrease in complexity will be from consolidating, not from using mutual funds.
I think it's relatively rare to have multiple accounts that one shuffles money between, and as I mentioned in #4, it's likely that one would want to use ETFs in at least one of the accounts anyway. E.g. in my case, it's mainly to get certain institution advantages, and I did it by moving ETF shares of Vanguard funds (that were originally MF shares). And I might move some more, who knows. Using MFs in this case would be a distinct downgrade in the quality of the instrument or the tax-/fee-efficiency of moving around. And again, this is [somewhat more] sophisticated investor territory.iceport wrote:2) Rebalancing between ETFs in a single account is not much harder than it is between mutual funds, with only the usual "Trading mechanics" objections. ◄ It's a rare case, indeed, to find any investor with the luxury of a single account portfolio.
No offense taken, and we're always looking for improvement. But deciding what to leave out lest the most important points become obscured is also something we must worry about.iceport wrote:I hope my criticism of the wiki article did not offend, as I didn't even check the author(s).
Re: What is the advantage of Mutual Funds over ETFS?
ogd,ogd wrote:It was my impression that these are accounts that one can move money between, not accounts with hard barriers. If one doesn't actually move money (where indeed the cash availability from ETF sales would be a major problem), then I fail to see how it's much harder with ETFs. Just the usual issues listed in Trading mechanics.iceport wrote:◄ An investor's choice of asset allocation is a personal decision, and not everyone chooses a 3-fund portfolio. Even for those that do, there are often 6 different accounts or more between a married couple with retirement plans at work, IRAs, and taxable accounts. Calling that reality "self-inflicted" is not fair.ogd wrote:1) Holding ETFs that get regularly rebalanced in multiple accounts is a self-inflicted complexity problem. The cure for that is simple: consolidate. It's very unlikely that a beginner would do this.
Now if one has several fungible accounts, e.g. multiple taxable or multiple IRAs owned by the same entity, then it is fair to call it a self-inflicted problem that can be rectified. The greatest decrease in complexity will be from consolidating, not from using mutual funds.
I think it's relatively rare to have multiple accounts that one shuffles money between, and as I mentioned in #4, it's likely that one would want to use ETFs in at least one of the accounts anyway. E.g. in my case, it's mainly to get certain institution advantages, and I did it by moving ETF shares of Vanguard funds (that were originally MF shares). And I might move some more, who knows. Using MFs in this case would be a distinct downgrade in the quality of the instrument or the tax-/fee-efficiency of moving around. And again, this is [somewhat more] sophisticated investor territory.iceport wrote:2) Rebalancing between ETFs in a single account is not much harder than it is between mutual funds, with only the usual "Trading mechanics" objections. ◄ It's a rare case, indeed, to find any investor with the luxury of a single account portfolio.
My vision of re-balancing does not move funds between accounts. (Well, it does when I make an annual Roth contribution, but that's a negligible issue.) At issue for me is that fact that I have 10 distinct allocations, across 3 account types (457b, Roth and taxable), and have a couple of overlapping positions needed for re-balancing. This is probably not a beginner's portfolio, though it is certainly not rare, either.
When re-balancing, often maintaining a portfolio's overall stock/bond ratio depends on all transactions occurring across different accounts on the same day. So in a way, the allocation get's shuffled virtually between accounts, not the actual funds.
With mutual funds, all transactions in all accounts can occur simultaneously, let alone on the same day.
But the cash availability even in the same account is an issue with ETFs. Sales of the overweight holdings need to be completed before the funds are available to purchase the underweight holdings. This strings out the transactions in series, and each one of them can be time-consuming and rather cumbersome.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
- Earl Lemongrab
- Posts: 7270
- Joined: Tue Jun 10, 2014 1:14 am
Re: What is the advantage of Mutual Funds over ETFS?
I haven't done a rebalance where I needed to move money between funds in about five years. Generally new contributions have taken care of any imbalances.
Earl
Earl
Re: What is the advantage of Mutual Funds over ETFS?
Wait -- in all of my brokerages I'm able to buy ETFs with unsettled funds, meaning I don't need to wait at all and can do a buy and sell within a few minutes. You could even have the two orders live at the same time, though I hear this can get you a slap on the wrist *. Some for me your use case isn't a problem - or it's only to the degree that any ETF transaction is slightly more annoying than a MF transaction.iceport wrote:But the cash availability even in the same account is an issue with ETFs. Sales of the overweight holdings need to be completed before the funds are available to purchase the underweight holdings. This strings out the transactions in series, and each one of them can be time-consuming and rather cumbersome.
Are you doing this, or are you waiting for settlement? I thought you needed to wait because of moving money to another institution, but this doesn't seem to be the case.
* Clarification: if the sell happens to execute before the buy, you'd have a situation equivalent to 100% leverage for a short amount of time. Brokerages want to control and charge for leverage, so they don't like it if you do that. Just make sure the sell executes quickly (e.g. marketable limit order), then place the buy.
Re: What is the advantage of Mutual Funds over ETFS?
The sales need to execute before the purchases can execute. Multiple individual sell-then-buy transactions must execute in series. This is a huge waste of time compared to mutual funds, with which multiple transactions can be combined into single "exchange" orders that can even involve three or more funds.ogd wrote:Wait -- in all of my brokerages I'm able to buy ETFs with unsettled funds, meaning I don't need to wait at all and can do a buy and sell within a few minutes. You could even have the two orders live at the same time, though I hear this can get you a slap on the wrist *. Some for me your use case isn't a problem - or it's only to the degree that any ETF transaction is slightly more annoying than a MF transaction.iceport wrote:But the cash availability even in the same account is an issue with ETFs. Sales of the overweight holdings need to be completed before the funds are available to purchase the underweight holdings. This strings out the transactions in series, and each one of them can be time-consuming and rather cumbersome.
Are you doing this, or are you waiting for settlement? I thought you needed to wait because of moving money to another institution, but this doesn't seem to be the case.
* Clarification: if the sell happens to execute before the buy, you'd have a situation equivalent to 100% leverage for a short amount of time. Brokerages want to control and charge for leverage, so they don't like it if you do that. Just make sure the sell executes quickly (e.g. marketable limit order), then place the buy.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
- bertilak
- Posts: 10711
- Joined: Tue Aug 02, 2011 5:23 pm
- Location: East of the Pecos, West of the Mississippi
Re: What is the advantage of Mutual Funds over ETFS?
This is especially troublesome when taking RMDs. You really need to be sure you don't undershoot or you will have some 'splainin' to do to the IRS.nisiprius wrote:2) Ease of purchasing or redeeming any desired specific dollar value. For example, I recently redeemed shares in order to buy $5,000 worth of series I savings bonds. I was able to redeem the right amount to yield $5,000.00 to the penny after tax withholding. With an ETF I'd have had to round up to a whole number of shares... and, if it was very close, say $5,001.00, I would have had to sell an extra share just to be sure, since with an ETF you are never exactly certain of the number of dollars you will receive. So you end up selling fifty, sixty, seventy dollars more than you want to. It's completely inconsequential, but it's annoying.
I am not sure how this works with the various automated RMD services that many brokerages provide, but they must have worked something out.
Last edited by bertilak on Fri Dec 02, 2016 6:59 pm, edited 1 time in total.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Re: What is the advantage of Mutual Funds over ETFS?
Is it really necessary to get the exact minimum of one's RMD, or can one be happy with an extra $30 to $100 in the RMD?bertilak wrote:This is especially troublesome when taking RMDs. You really need to be sure you don't undershoot or you will have some 'splainin' to do to the IRS.
And can't one have both ETFs and mutual funds in their accounts, so one could take the RMD from a mutual fund if they wanted to.
- bertilak
- Posts: 10711
- Joined: Tue Aug 02, 2011 5:23 pm
- Location: East of the Pecos, West of the Mississippi
Re: What is the advantage of Mutual Funds over ETFS?
Like you said above, it's mostly just a bit of annoyance and needing to pay more attention to the process. I like saying "take $12,345,67 of VTSAX, hold back 10% for taxes, and put 90% in VTSAX in the taxable."livesoft wrote:Is it really necessary to get the exact minimum of one's RMD, or can one be happy with an extra $30 to $100 in the RMD?bertilak wrote:This is especially troublesome when taking RMDs. You really need to be sure you don't undershoot or you will have some 'splainin' to do to the IRS.
And can't one have both ETFs and mutual funds in their accounts, so one could take the RMD from a mutual fund if they wanted to.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
- nisiprius
- Advisory Board
- Posts: 52105
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: What is the advantage of Mutual Funds over ETFS?
Of course. It's not a big deal. It's a small deal.livesoft wrote:Is it really necessary to get the exact minimum of one's RMD, or can one be happy with an extra $30 to $100 in the RMD?bertilak wrote:This is especially troublesome when taking RMDs. You really need to be sure you don't undershoot or you will have some 'splainin' to do to the IRS.
And can't one have both ETFs and mutual funds in their accounts, so one could take the RMD from a mutual fund if they wanted to.
I think undershooting an RMD by a small amount is also a small deal. It hasn't happened to me yet, though. But what does happen if you're $34.56 short on your RMD? "You will have some 'splainin' to do to the IRS." Sure. Probably they 'splain to you, first, that you were $34.56 short, and that
A stiff penalty, a draconian penalty--of 50% of the amount not withdrawn, or $17.28. And once your fury at the injustice subsides and you stop saying "Curse you, IRS! Curse you, ETFs! Curse you, RMDs!" you use, apparently, Form 5329, which I suppose has a line on it that says "Enter 'splanation here."If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
- bertilak
- Posts: 10711
- Joined: Tue Aug 02, 2011 5:23 pm
- Location: East of the Pecos, West of the Mississippi
Re: What is the advantage of Mutual Funds over ETFS?
My fury at injustice subsides very slowly. Well, that's if I am the target of the injustice!nisiprius wrote:... once your fury at the injustice subsides and you stop saying "Curse you, IRS! Curse you, ETFs! Curse you, RMDs!" you use, apparently, Form 5329, which I suppose has a line on it that says "Enter 'splanation here."
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
- nisiprius
- Advisory Board
- Posts: 52105
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: What is the advantage of Mutual Funds over ETFS?
SpartanBull, since you say "Personally, I only have mutual funds," and since it sounds as if you're skeptical that they have any advantages, the obvious suggestion is that you give ETFs a try, if your accounts and so forth are set up in a way that makes it easy to do (e.g. you have a tax-sheltered account in which you can hold either mutual funds or ETFs). Really, there shouldn't be any reason for arguing. If you're curious, give it a shot and see for yourself.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: What is the advantage of Mutual Funds over ETFS?
That works well if there is activity at the opening cross, but you shouldn't do it for lower-volume ETFs which often open at very large spreads. There may be no trades other than yours at the opening cross, or your market order may change the cross price.livesoft wrote:I have shown that submitting ETF market orders for execution at the opening cross works as pretty well without bid/ask spreads.
If an ETF opens with a best bid of $98 and a best offer of $99, there will be no trades at the opening cross unless you add your market order. A market order to buy at the open will buy at $99. If you wait and the spread narrows to a typical 10 cents, it is as likely to narrow to $98.00-$98.10, saving you $90, as to $98.90-99.00, saving you nothing, so your expected savings for waiting is $45 on a 100-share order.
In particular, VSS (FTSE All-World Ex-US Small-Cap) often trades at this type of spread. I may look at the market at 9:30 when I want to buy it, but I will wait for the spread to narrow, sometimes until 10:00, before I place an order.