Do you prefer etfs or mutual funds?

[AlphaLess]

ETFs are structurally more efficient than mutual funds and reduce costs for Vanguard. As low cost zealots we should embrace ETFs and abandon mutual funds.

Indeed.

There is also a more fundamental difference.

If Vanguard is able to transition to 100% ETFs, then they no longer need to be in the business of being a trader, but can just become an asset manager.

When a customer buys mutual fund shares, they need to trade the dollars to get the underlying basket.
When a customer buys ETF shares, Vanguard does not need to do anything. The brokers, market makers, etc, can handle that.
I mean, Vanguard can still act as the retail broker (or not), but that is a relatively NOOP job these days.

[S_Track]

Perhaps all Bogleheads could coordinate a telephone call to Vanguard one night to request the "year to date" statements for brokerage and ETF be really "year to date" statements that provide 12 months of history.

Maybe they would fix this and more folks would transition!

Would you please explain this further. I opened up a brokerage account this year for the first time but only using VG Total Stock mutual fund and just contributions, no sales. I thought I would only need to deal with a 1099 from VG come tax time. Why do we need Monthly statements? Thanks

[jhfenton]

Perhaps all Bogleheads could coordinate a telephone call to Vanguard one night to request the "year to date" statements for brokerage and ETF be really "year to date" statements that provide 12 months of history.

Maybe they would fix this and more folks would transition!

Perhaps all Bogleheads could coordinate a telephone call to Vanguard one night to request the "year to date" statements for brokerage and ETF be really "year to date" statements that provide 12 months of history.

Maybe they would fix this and more folks would transition!

Would you please explain this further. I opened up a brokerage account this year for the first time but only using VG Total Stock mutual fund and just contributions, no sales. I thought I would only need to deal with a 1099 from VG come tax time. Why do we need Monthly statements? Thanks

I don't understand the importance of this either. We get monthly statements if there is activity in the month in an account and quarterly statements if there is not. I save the PDFs, and then typically never look at them again. At tax time, I confirm that any gain or loss on my 1099 matches what I expect and then the statements essentially become irrelevant. If I do have to look by and reconstruct a transaction, I don't see where consulting 12 PDFs--our taxable account always has monthly dividend activity if nothing else--is that much different than consulting 1 PDF.

And for our IRAs, the statements are essentially irrelevant. I save them, but I can't imagine why I would ever look at them again. (I essentially reconcile our accounts with my spreadsheet every day. I would address any discrepancy immediately, rather than wait even for a monthly statement.)

[Triple digit golfer]

Help an idiot understand.

I am a basic 3 fund, mutual fund investor. Somehow a couple years ago, my Vanguard accounts changed to brokerage accounts. I see settlement fund with $0.03 in there and I don't know how to get it out. The layout is cluttered and confusing.

Anyway, let's say in my Roth IRA I want to exchange $50,000 of VTSAX for $50,000 of a Vanguard ETF.

Do I have to first sell the $50,000 VTSAX to my settlement account, wait a day or two for it to appear, then go back in and buy the ETF?

What do the various ETF purchase options mean: limit, stop, etc.?

[02nz]

Anyway, let's say in my Roth IRA I want to exchange $50,000 of VTSAX for $50,000 of a Vanguard ETF.

Do I have to first sell the $50,000 VTSAX to my settlement account, wait a day or two for it to appear, then go back in and buy the ETF?

Sure you could sell VTSAX and then buy VTI, but the better way would be just to call Vanguard and ask them to convert the shares from mutual fund to ETF. This takes a few days but you're not out of the market at all. No tax consequences even in a taxable account. It is one-way only; if you wanted to go back to mutual funds you'd have to sell and then re-buy.

[abuss368]

Perhaps all Bogleheads could coordinate a telephone call to Vanguard one night to request the "year to date" statements for brokerage and ETF be really "year to date" statements that provide 12 months of history.

Maybe they would fix this and more folks would transition!

Would you please explain this further. I opened up a brokerage account this year for the first time but only using VG Total Stock mutual fund and just contributions, no sales. I thought I would only need to deal with a 1099 from VG come tax time. Why do we need Monthly statements? Thanks

Vanguard's year to date statements for mutual fund accounts have all transactions for the entire year. One only needs the year end statement which includes all activity.

Vanguard's year to date statements for brokerage accounts, even though they say year to date, they only have the most recent monthly activity. Not true year to date statements.

Perhaps some folks do not mind but others may not want to save 12 months of statements.

[abuss368]

Perhaps all Bogleheads could coordinate a telephone call to Vanguard one night to request the "year to date" statements for brokerage and ETF be really "year to date" statements that provide 12 months of history.

Maybe they would fix this and more folks would transition!

Perhaps all Bogleheads could coordinate a telephone call to Vanguard one night to request the "year to date" statements for brokerage and ETF be really "year to date" statements that provide 12 months of history.

Maybe they would fix this and more folks would transition!

Would you please explain this further. I opened up a brokerage account this year for the first time but only using VG Total Stock mutual fund and just contributions, no sales. I thought I would only need to deal with a 1099 from VG come tax time. Why do we need Monthly statements? Thanks

I don't understand the importance of this either. We get monthly statements if there is activity in the month in an account and quarterly statements if there is not. I save the PDFs, and then typically never look at them again. At tax time, I confirm that any gain or loss on my 1099 matches what I expect and then the statements essentially become irrelevant. If I do have to look by and reconstruct a transaction, I don't see where consulting 12 PDFs--our taxable account always has monthly dividend activity if nothing else--is that much different than consulting 1 PDF.

And for our IRAs, the statements are essentially irrelevant. I save them, but I can't imagine why I would ever look at them again. (I essentially reconcile our accounts with my spreadsheet every day. I would address any discrepancy immediately, rather than wait even for a monthly statement.)

See below.

[ftobin]

My understanding is that trading out of market hours is bad because prices tend to go wonky at market open due to the time it takes for trading to get started and all of the various after-hours actions that have taken place. But if you use a limit order to set a rationally set price above which you will not buy then it seems to me that this problem is greatly reduced or erased, certainly for someone who is planning on holding for ten or twenty years and doesn't need the best possible price from their holdings the way an active trader would.

How did you "rationally" set this limit order price? You have no reference points that are valid outside of market hours. As a retail trader, your reference points should be the prevailing market values of the continuous market. But the market gaps overnight. Either your your limit order price will be hyper-marketable, and you'll have the problem of possibly executing at poor prices in the open, or it'll likely be far outside the opening spread, and not achieving your retail goal of being executed. The odds of you predicting the opening spread are poor.

Now you're saying that this understanding is wrong. Where is it wrong? What is the incorrect assumption that I'm making?

The assumption that is wrong is that you don't have a mechanism to define a reasonable limit order price outside of market hours that will provide the the benefit of both

• getting the order executed
• getting a good price

Contrasted with submitting a marketable order that is valid at, say, 15:00, or an on-close order, you are putting yourself at much greater risk of not achieving both of these goals.

[Johnnie]

Yes, I had noticed, along with other indications of an emphasis on ETFs. It seems as if they've constantly had something about ETFs in their home page highlights or rotating adlets or whatever you'd call 'em for some time now...

And since I personally like mutual funds and dislike ETFs, it doesn't thrill me, but I don't view it with much alarm, either.

May I ask, why do you prefer the mutual fund over the ETF? I started with the mutual funds in my account and very hesitant to convert them to ETFs, but I do not have a very good reason for my resistance. I pay an extra basis point for VTSAX, 2 basis points for VTIAX, and 1.5 basis points for VBTLX. Why am I spending a few hundred bucks a year to stay in the mutual funds? If I may ask, why are you?

I too would like to hear Nisprius's reason.

I once posted a thread asking whether ETFs actually owned the shares, or were they just "contracts" with counterparties that mimic owning shares. The term is "synthetic" I learned there. Everyone insisted the ETFs, really do own the shares, but late in the thread someone pointed to some that are indeed "synthetic."

I worry very, very little that VG and Schwab will ever play fast and loose the plain vanilla ETFs I own there. But I worry even less about the mutual funds.

[EnjoyIt]

Yes, I had noticed, along with other indications of an emphasis on ETFs. It seems as if they've constantly had something about ETFs in their home page highlights or rotating adlets or whatever you'd call 'em for some time now...

And since I personally like mutual funds and dislike ETFs, it doesn't thrill me, but I don't view it with much alarm, either.

May I ask, why do you prefer the mutual fund over the ETF? I started with the mutual funds in my account and very hesitant to convert them to ETFs, but I do not have a very good reason for my resistance. I pay an extra basis point for VTSAX, 2 basis points for VTIAX, and 1.5 basis points for VBTLX. Why am I spending a few hundred bucks a year to stay in the mutual funds? If I may ask, why are you?

I too would like to hear Nisprius's reason.

I once posted a thread asking whether ETFs actually owned the shares, or were they just "contracts" with counterparties that mimic owning shares. The term is "synthetic" I learned there. Everyone insisted the ETFs, really do own the shares, but late in the thread someone pointed to some that are indeed "synthetic."

I worry very, very little that VG and Schwab will ever play fast and loose the plain vanilla ETFs I own there. But I worry even less about the mutual funds.

Generally, in a thread I may skip a few comments, but if nisiprius writes something I always read it. His posts are some of the best on this forum. When he wrote he doesn’t like ETFs, I would love to know his reasoning. Maybe like me, he chooses mutual funds just out of habit as opposed to some deep rooted underlying reason.

I really wonder if this habit or the thought that the ownership is synthetic worth spending a few hundred a year in higher expense ratio fees?

[TheDDC]

No thanks. There is very little feature parity between MFs and ETFs, at least using the Vanguard platform. Things I can do with Vanguard MFs that I cannot with ETFs:

- Transfer directly from my bank to the fund shares
- Setup automatic investments from my bank (see above)
- Buy partial shares of a fund
- Buy the ETF equivalent of, you know, the very same funds Vanguard likes to hang their hat on on a regular basis: Wellesley and Wellington

I would be very much interested in converting to ETFs but these are just ridiculous limitations. ETFs also add another day of processing when putting in a sell order is my understanding.

Vanguard could FIX THIS in their brokerage platform and in turn make ETFs make more sense. Until then no thanks.

-TheDDC

[ftobin]

I once posted a thread asking whether ETFs actually owned the shares, or were they just "contracts" with counterparties that mimic owning shares. The term is "synthetic" I learned there. Everyone insisted the ETFs, really do own the shares, but late in the thread someone pointed to some that are indeed "synthetic."

I think you're thinking of ETNs, which are Exchange Trades Notes, and only a contract with the provider.

ETFs are the same structure as mutual funds underneath. I might be mistaken, but I think they actually classify as mutual funds, just additionally able to be traded on exchanges.

[EnjoyIt]

No thanks. There is very little feature parity between MFs and ETFs, at least using the Vanguard platform. Things I can do with Vanguard MFs that I cannot with ETFs:

- Transfer directly from my bank to the fund shares
- Setup automatic investments from my bank (see above)
- Buy partial shares of a fund
- Buy the ETF equivalent of, you know, the very same funds Vanguard likes to hang their hat on on a regular basis: Wellesley and Wellington

I would be very much interested in converting to ETFs but these are just ridiculous limitations. ETFs also add another day of processing when putting in a sell order is my understanding.

Vanguard could FIX THIS in their brokerage platform and in turn make ETFs make more sense. Until then no thanks.

-TheDDC

Thanks.

[EnjoyIt]

I once posted a thread asking whether ETFs actually owned the shares, or were they just "contracts" with counterparties that mimic owning shares. The term is "synthetic" I learned there. Everyone insisted the ETFs, really do own the shares, but late in the thread someone pointed to some that are indeed "synthetic."

I think you're thinking of ETNs, which are Exchange Trades Notes, and only a contract with the provider.

ETFs are the same structure as mutual funds underneath. I might be mistaken, but I think they actually classify as mutual funds, just additionally able to be traded on exchanges.

It reminds me of the ETF GLD which to my understanding does not own all that gold in reserves.

[Northern Flicker]

Your timing approach is generally not advised. Ideally one trades in the mid to late half of the day, when liquidity is stable. Orders placed outside of market hours could execute during illiquid times at (future-looking) poor prices. Background: 15 years of market making and buy-side order flow analysis.

My ideal non-informed trade would be to submit an all-day VWAP order.

What percentage of mutual fund investors have enough trading experience to get it right?

[Northern Flicker]

PortfolioVisualizer isn't showing "investor returns."

The phrase "investor returns" means the average dollar-weighted returns that were, collectively, made by actual investors in the fund or ETF, taking inflows and outflows into account.

The numbers usually shown are "fund returns" which are the hypothetical returns that would have been made by an investor who bought at the start of the period and stayed the course.

ETF investors include active traders and stay-the-course investors. An investor should not be concerned with the returns of other investors who trade regularly, but with their own returns for their own strategy. ETFs offer long-term stay-the-course investors returns that would be expected to be very slightly better than if Vanguard mutual funds identical to Vanguard ETFs were used instead, but not by enough to worry about, and the PV data I posted shows that it is not guaranteed. With the lower ER now in place for many Vanguard ETFs relative to corresponding admiral shares,I think the advantage has tilted slightly toward Vanguard ETFs over the corresponding mutual funds.

[Workable Goblin]

How did you "rationally" set this limit order price?

Since we're discussing ETFs, presumably at NAV or at some value based on the pre-closure price, say slightly above the lowest price that the shares reached yesterday. Although you argued that NAV is actually whatever the marketable price is previously, I consider that buying something for less than the value of its contents is a good deal, especially when I have twenty or thirty years for it to appreciate before I have to sell that something back off.

As a retail trader, your reference points should be the prevailing market values of the continuous market. But the market gaps overnight. Either your your limit order price will be hyper-marketable, and you'll have the problem of possibly executing at poor prices in the open,

And as I've been commenting throughout this discussion, it's not clear to me how poor a "poor price" is likely to be and what impact getting a "poor price" would actually have for a buy-and-hold investor. Are we talking about paying, say, a penny more per share on a fifty-dollar a share ETF, which is unlikely to make any significant difference in the long run, or another fifty dollars a share, which is obviously going to be a problem?

I agree that this would be an obvious and uncorrectable problem if you were selling, but presumably a Boglehead isn't doing that very often. I certainly don't do that very often, so I'm more interested in the impact on buying. Especially since, as I said, I live in Honolulu so it would be very convenient for me to be able to place orders outside of market hours (that is, during most hours when I'm likely to be awake) and know that I would be mostly fine in the end.

or it'll likely be far outside the opening spread, and not achieving your retail goal of being executed.

So? I'm not in any particular rush here. If it's not executed I can just try again. Again, this is looking at it through a specifically Boglehead lens where I'm buying and holding, and holding one day more or less is going to make practically no difference, so having an order not execute is only a mild annoyance at worst. if the order executes it executes and if it doesn't it doesn't.

Again, this is obviously more of a problem if you're selling shares to meet some need, in which case you probably do want to have the order execute in good time. In that case, sure, after-hours orders are a problem.

The assumption that is wrong is that you don't have a mechanism to define a reasonable limit order price outside of market hours that will provide the the benefit of both

But I see several methods of defining reasonable prices in most circumstances looking at previous executions and/or the actual value of the underlying assets the ETF holds. This might not hold in the middle of a stock market crash, granted, but even then the subsequent recovery will most likely make up for any issues of this sort in the long run.

Essentially, I'm thinking of the worst market timer ever. The one who only invested at the peaks but, since he or she never sold, ended up making plenty of money anyway. I cannot see how having sub-par order execution is going to be worse than that.

[student5]

Morningstar reports that Vanguard Total International Stock Index Fund (VTIAX) has a TTM yield of 2.88%. Its ETF equivalent has a TTM yield of 2.92%, a difference of 0.04% in favor of VXUS. In addition, many have commented on the lower ER of VXUS vs VTIAX, now 0.03% difference in favor of VXUS.
Is it reasonable to add the yield and ER differences together (0.07% in favor of VXUS) in order to help decide whether a conversion from the mutual fund VTIAX to the ETF VXUS makes sense?

[csmath]

The thing that I don't understand is that only the Mutual Funds are available in any 403b/457b that I've ever seen. (perhaps 401k's too) Contributions from payroll deductions really don't work well with ETF's.

It appears to me that until Vanguard figures out how to allow automatic reinvestment of dividends and purchasing of partial ETF shares, that MF's are here to stay. And if they really are here to stay then what's up with the idea that their website and tech infrastructure is transitioning to ETF's and may eventually no longer support MF's.

I get the feeling that they "want" people to transition to the brokerage platform but that a bit of fearmongering is being used to pressure people into the transition. I think they are going to have to maintain and update the MF platform online regardless or lose the 403b/457b business. Maybe in another decade things will be different with workplace retirement offerings.

[jeffyscott]

Is it reasonable to add the yield and ER differences together (0.07% in favor of VXUS) in order to help decide whether a conversion from the mutual fund VTIAX to the ETF VXUS makes sense?

No, the the ER difference is what causes the difference in yield (the 1 bp variation is, I assume, just due to rounding). You would be double counting the ER difference by doing what you suggest.

If two funds hold exactly the same investments and differ only in ER, the yield of the more expensive one is going to be lower by the difference in the ERs. The fund expenses are taken from the yield prior to distributing it to the fund shareholders.

[jhfenton]

Vanguard's year to date statements for mutual fund accounts have all transactions for the entire year. One only needs the year end statement which includes all activity.

Vanguard's year to date statements for brokerage accounts, even though they say year to date, they only have the most recent monthly activity. Not true year to date statements.

Perhaps some folks do not mind but others may not want to save 12 months of statements.

They are PDFs in a folder that I am almost certain never to look at. It's no skin off my back to save 12 of them. I'm only going to consult them in an emergency. I'm far more likely to simply delete them in a few years. And for 4 of our 5 accounts--our Roths and rollover IRAs--I can't imagine why I'd ever need to consult more than the most recent month.

I can understand the preference. I cannot understand why it is at all a big deal.

[MindBogler]

To me, the advantage of mutual funds is the option of automatic reinvestment of gains in the fund, with no need for the investor to take any action.

Even Vanguard's antiquated systems allow for automatic re-investment of dividends and capital gains in ETFs.

[jhfenton]

I once posted a thread asking whether ETFs actually owned the shares, or were they just "contracts" with counterparties that mimic owning shares. The term is "synthetic" I learned there. Everyone insisted the ETFs, really do own the shares, but late in the thread someone pointed to some that are indeed "synthetic."

I think you're thinking of ETNs, which are Exchange Trades Notes, and only a contract with the provider.

ETFs are the same structure as mutual funds underneath. I might be mistaken, but I think they actually classify as mutual funds, just additionally able to be traded on exchanges.

+1 ETFs are literally mutual funds under the Investment Act of 1940 that are traded on an exchange per a grant of exemptive relief from the SEC. Until the new ETF rule goes into effect, ETFs are literally been operating under a series of exceptions to the traditional rules for mutual funds. So, yes, the custodian of an ETF directly holds the stocks, bonds, and other securities owned by the ETF. In large blocks, you can even surrender the shares in exchange for the underlying securities--and vice versa. That is how shares are created and destroyed and how the market price is kept in line with the NAV.

ETNs--exchange traded notes--are basically exchange-traded bonds issued by a financial institution with a promised payout determined by an index or calculation written into the contract. They have the same credit risk as any bond issued by that financial institution. I can't imagine a situation where I would even consider an ETN.

[nisiprius]

...When [Nisiprius] wrote he doesn’t like ETFs, I would love to know his reasoning...

I didn't say there was reasoning, I said I didn't like them.

One factor is sales resistance against some shrill voices insisting that ETFs are hugely better than mutual funds, when I don't think there's an atom of difference between 'em. Out of orneriness, when people insist that the lively crowd today agrees, those who think young say "Pepsi please," I dig in my heels and order Coke.

[Silence Dogood]

PortfolioVisualizer isn't showing "investor returns."

The phrase "investor returns" means the average dollar-weighted returns that were, collectively, made by actual investors in the fund or ETF, taking inflows and outflows into account.

The numbers usually shown are "fund returns" which are the hypothetical returns that would have been made by an investor who bought at the start of the period and stayed the course.

ETF investors include active traders and stay-the-course investors. An investor should not be concerned with the returns of other investors who trade regularly, but with their own returns for their own strategy. ETFs offer long-term stay-the-course investors returns that would be expected to be very slightly better than if Vanguard mutual funds identical to Vanguard ETFs were used instead, but not by enough to worry about, and the PV data I posted shows that it is not guaranteed. With the lower ER now in place for many Vanguard ETFs relative to corresponding admiral shares,I think the advantage has tilted slightly toward Vanguard ETFs over the corresponding mutual funds.

I think that it's always a good idea to explore the consequences of adopting a new technology.

[jhfenton]

...When [Nisiprius] wrote he doesn’t like ETFs, I would love to know his reasoning...

I didn't say there was reasoning, I said I didn't like them.

One factor is sales resistance against some shrill voices insisting that ETFs are hugely better than mutual funds, when I don't think there's an atom of difference between 'em. Out of orneriness, when people insist that the lively crowd today agrees, those who think young say "Pepsi please," I dig in my heels and order Coke.

Nothing wrong with that. Heck. I even prefer mutual funds, all else being equal, and 61.8% of our invested assets are in ETFs. And 22.2% of the 38.2% is in my 401(k), where I have only mutual funds to choose from. (I'm going to convert another position to ETF in a few days to save fees now that a 4 bp gap has opened between the emerging markets funds VEMAX and VWO.)

Why? Our largest holdings simply aren't available as mutual funds (VFVA/Vanguard US Value Factor) or are much cheaper in ETF form (VSS/Vanguard FTSE All-world ex-US Small Cap at 11 bp vs 16 bp).

I like Caffeine Free Diet Mt. Dew, and you can imagine what people think of that.

[FrugalInvestor]

...When [Nisiprius] wrote he doesn’t like ETFs, I would love to know his reasoning...

I didn't say there was reasoning, I said I didn't like them.

One factor is sales resistance against some shrill voices insisting that ETFs are hugely better than mutual funds, when I don't think there's an atom of difference between 'em. Out of orneriness, when people insist that the lively crowd today agrees, those who think young say "Pepsi please," I dig in my heels and order Coke.

I'm with you nisi...always a bit suspicious when the crowd is all singing the same song and happier picking my own tune.

[abuss368]

...When [Nisiprius] wrote he doesn’t like ETFs, I would love to know his reasoning...

I didn't say there was reasoning, I said I didn't like them.

One factor is sales resistance against some shrill voices insisting that ETFs are hugely better than mutual funds, when I don't think there's an atom of difference between 'em. Out of orneriness, when people insist that the lively crowd today agrees, those who think young say "Pepsi please," I dig in my heels and order Coke.

I'm with you nisi...always a bit suspicious when the crowd is all singing the same song and happier picking my own tune.

Well said. Vanguard ETF's are one class of shares of the same mutual fund.

[Triple digit golfer]

...When [Nisiprius] wrote he doesn’t like ETFs, I would love to know his reasoning...

I didn't say there was reasoning, I said I didn't like them.

One factor is sales resistance against some shrill voices insisting that ETFs are hugely better than mutual funds, when I don't think there's an atom of difference between 'em. Out of orneriness, when people insist that the lively crowd today agrees, those who think young say "Pepsi please," I dig in my heels and order Coke.

I'm with you nisi...always a bit suspicious when the crowd is all singing the same song and happier picking my own tune.

Well said. Vanguard ETF's are one class of shares of the same mutual fund.

Yep. I have no desire to use ETFs whatsoever.

[abuss368]

Yep. I have no desire to use ETFs whatsoever.

Our mutual fund accounts do what they are supposed to do. Thus we have no need or motivation to change. That is as long as Vanguard never forces investors!

[EnjoyIt]

I once posted a thread asking whether ETFs actually owned the shares, or were they just "contracts" with counterparties that mimic owning shares. The term is "synthetic" I learned there. Everyone insisted the ETFs, really do own the shares, but late in the thread someone pointed to some that are indeed "synthetic."

I think you're thinking of ETNs, which are Exchange Trades Notes, and only a contract with the provider.

ETFs are the same structure as mutual funds underneath. I might be mistaken, but I think they actually classify as mutual funds, just additionally able to be traded on exchanges.

+1 ETFs are literally mutual funds under the Investment Act of 1940 that are traded on an exchange per a grant of exemptive relief from the SEC. Until the new ETF rule goes into effect, ETFs are literally been operating under a series of exceptions to the traditional rules for mutual funds. So, yes, the custodian of an ETF directly holds the stocks, bonds, and other securities owned by the ETF. In large blocks, you can even surrender the shares in exchange for the underlying securities--and vice versa. That is how shares are created and destroyed and how the market price is kept in line with the NAV.

ETNs--exchange traded notes--are basically exchange-traded bonds issued by a financial institution with a promised payout determined by an index or calculation written into the contract. They have the same credit risk as any bond issued by that financial institution. I can't imagine a situation where I would even consider an ETN.

Please correct me if I’m wrong, but GLD does not own it’s value in physical gold. That appears contradictory to the above if I’m right.

[student5]

Is it reasonable to add the yield and ER differences together (0.07% in favor of VXUS) in order to help decide whether a conversion from the mutual fund VTIAX to the ETF VXUS makes sense?

No, the the ER difference is what causes the difference in yield (the 1 bp variation is, I assume, just due to rounding). You would be double counting the ER difference by doing what you suggest.

If two funds hold exactly the same investments and differ only in ER, the yield of the more expensive one is going to be lower by the difference in the ERs. The fund expenses are taken from the yield prior to distributing it to the fund shareholders.

Thanks jeffyscott!

[ftobin]

But I see several methods of defining reasonable prices in most circumstances looking at previous executions and/or the actual value of the underlying assets the ETF holds.

Not outside of market hours, which is what I was originally responding to.

I don't see much value in responding any more. You may take my advice or leave it.

[S_Track]

But I see several methods of defining reasonable prices in most circumstances looking at previous executions and/or the actual value of the underlying assets the ETF holds.

Not outside of market hours, which is what I was originally responding to.

I don't see much value in responding any more. You may take my advice or leave it.

I do not have any experience with ETF's but curious if we have the same problem with mutual funds? When I place an order for a mutual fund in the morning I have no idea what the closing price will be when its executed. Is this similar? Thanks

[jhfenton]

+1 ETFs are literally mutual funds under the Investment Act of 1940 that are traded on an exchange per a grant of exemptive relief from the SEC. Until the new ETF rule goes into effect, ETFs are literally been operating under a series of exceptions to the traditional rules for mutual funds. So, yes, the custodian of an ETF directly holds the stocks, bonds, and other securities owned by the ETF. In large blocks, you can even surrender the shares in exchange for the underlying securities--and vice versa. That is how shares are created and destroyed and how the market price is kept in line with the NAV.

ETNs--exchange traded notes--are basically exchange-traded bonds issued by a financial institution with a promised payout determined by an index or calculation written into the contract. They have the same credit risk as any bond issued by that financial institution. I can't imagine a situation where I would even consider an ETN.

Please correct me if I’m wrong, but GLD does not own it’s value in physical gold. That appears contradictory to the above if I’m right.

GLD does own the physical gold. It is structured as a grantor trust, with the physical gold bars held in London.

Most of the current gold ETFs hold physical gold. At this point, at 40 bp, GLD is not a good choice except for extremely-active traders.

[abuss368]

Vanguard's year to date statements for mutual fund accounts have all transactions for the entire year. One only needs the year end statement which includes all activity.

Vanguard's year to date statements for brokerage accounts, even though they say year to date, they only have the most recent monthly activity. Not true year to date statements.

Perhaps some folks do not mind but others may not want to save 12 months of statements.

They are PDFs in a folder that I am almost certain never to look at. It's no skin off my back to save 12 of them. I'm only going to consult them in an emergency. I'm far more likely to simply delete them in a few years. And for 4 of our 5 accounts--our Roths and rollover IRAs--I can't imagine why I'd ever need to consult more than the most recent month.

I can understand the preference. I cannot understand why it is at all a big deal.

I would not consider it a big deal. I guess if one has a Traditional or Roth IRA for many years (past 5 year point for Roth IRA), never takes any contributions out before 59.5 years old, and does not have any non-deductible contributions for purposes of a Traditional IRA, is there really need to retain any statements? Is there a need to retain any tax files after three years?

[Seasonal]

Perhaps all Bogleheads could coordinate a telephone call to Vanguard one night to request the "year to date" statements for brokerage and ETF be really "year to date" statements that provide 12 months of history.

Maybe they would fix this and more folks would transition!

Year to date (YTD) means Jan 1 to the date in question.

You want last twelve months (LTM).

[abuss368]

Perhaps all Bogleheads could coordinate a telephone call to Vanguard one night to request the "year to date" statements for brokerage and ETF be really "year to date" statements that provide 12 months of history.

Maybe they would fix this and more folks would transition!

Year to date (YTD) means Jan 1 to the date in question.

You want last twelve months (LTM).

Our mutual fund account statements show all transactions from January 1st to each statement date:

1st Quarter - 1/1 - 3/31
2nd Quarter - 1/1 - 6/30
3rd Quarter - 1/1 - 9/30
4th Quarter - 1/1 - 12/31

We simply save the final year end statement which includes all transactions for the entire year.

[jhfenton]

I would not consider it a big deal. I guess if one has a Traditional or Roth IRA for many years (past 5 year point for Roth IRA), never takes any contributions out before 50.5 years old, and does not have any non-deductible contributions for purposes of a Traditional IRA, is there really need to retain any statements? Is there a need to retain any tax files after three years?

To answer your last question, I don't think so. I usually throw away our 4-year-old tax documents when I file my taxes each year. That's probably one year more than necessary, but I feel safer rounding up.

I fall into all of those other categories too. We've both had Roth IRAs since 1998, and we've never made non-deductible traditional IRA contributions. So I probably don't need to save our Roth and Traditional IRA statements at all, but I download them at the same time as the taxable account.

[EnjoyIt]

+1 ETFs are literally mutual funds under the Investment Act of 1940 that are traded on an exchange per a grant of exemptive relief from the SEC. Until the new ETF rule goes into effect, ETFs are literally been operating under a series of exceptions to the traditional rules for mutual funds. So, yes, the custodian of an ETF directly holds the stocks, bonds, and other securities owned by the ETF. In large blocks, you can even surrender the shares in exchange for the underlying securities--and vice versa. That is how shares are created and destroyed and how the market price is kept in line with the NAV.

ETNs--exchange traded notes--are basically exchange-traded bonds issued by a financial institution with a promised payout determined by an index or calculation written into the contract. They have the same credit risk as any bond issued by that financial institution. I can't imagine a situation where I would even consider an ETN.

Please correct me if I’m wrong, but GLD does not own it’s value in physical gold. That appears contradictory to the above if I’m right.

GLD does own the physical gold. It is structured as a grantor trust, with the physical gold bars held in London.

Most of the current gold ETFs hold physical gold. At this point, at 40 bp, GLD is not a good choice except for extremely-active traders.

Thanks for clarifying.

[abuss368]

I would not consider it a big deal. I guess if one has a Traditional or Roth IRA for many years (past 5 year point for Roth IRA), never takes any contributions out before 50.5 years old, and does not have any non-deductible contributions for purposes of a Traditional IRA, is there really need to retain any statements? Is there a need to retain any tax files after three years?

To answer your last question, I don't think so. I usually throw away our 4-year-old tax documents when I file my taxes each year. That's probably one year more than necessary, but I feel safer rounding up.

I fall into all of those other categories too. We've both had Roth IRAs since 1998, and we've never made non-deductible traditional IRA contributions. So I probably don't need to save our Roth and Traditional IRA statements at all, but I download them at the same time as the taxable account.

Thanks!

[shess]

Vanguard's year to date statements for mutual fund accounts have all transactions for the entire year. One only needs the year end statement which includes all activity.

Vanguard's year to date statements for brokerage accounts, even though they say year to date, they only have the most recent monthly activity. Not true year to date statements.

Perhaps some folks do not mind but others may not want to save 12 months of statements.

They are PDFs in a folder that I am almost certain never to look at. It's no skin off my back to save 12 of them. I'm only going to consult them in an emergency. I'm far more likely to simply delete them in a few years. And for 4 of our 5 accounts--our Roths and rollover IRAs--I can't imagine why I'd ever need to consult more than the most recent month.

I can understand the preference. I cannot understand why it is at all a big deal.

To my mind, there is no point to holding on to statements at all unless you verify that they are correct in the first place. It's less effort to review a single statement than twelve of them, and it's also less prone to error. It's not like Vanguard's saving billions of dollars by the change, it's probably just two systems written independently and they never bothered.

[fortyofforty]

Until Vanguard ETFs allow the purchase of partial shares, and the direct transfer of proceeds from one to the other in an exchange, rather than a multi-step process, I'll continue to use mutual funds.

[Nate79]

Until Vanguard ETFs allow the purchase of partial shares, and the direct transfer of proceeds from one to the other in an exchange, rather than a multi-step process, I'll continue to use mutual funds.

This capability seems to be coming to Schwab in the near future with their coming capability to trade fractional shares.

[jhfenton]

Until Vanguard ETFs allow the purchase of partial shares, and the direct transfer of proceeds from one to the other in an exchange, rather than a multi-step process, I'll continue to use mutual funds.

This capability seems to be coming to Schwab in the near future with their coming capability to trade fractional shares.

Maybe. A spokesperson said in a subsequent interview that they were only going to roll out fractional share trading for stocks this year, that ETFs would not be included. They said there were logistical issues that would have to be resolved with ETFs.

I can imagine that since Schwab already has ETF and mutual fund custodians holding in quantity every US listed equity--through their Total Market Mutual fund, Broad Market ETF, and other funds--they might be able to take advantage of that fact to facilitate fractional shares trading of those stocks. But the same is almost certainly not true of every US listed ETF. For a similar reason, you can reinvest dividends for most stocks at Vanguard, but only for widely-held non-Vanguard ETFs.

Edited to add a link: Fractional ETF Trading’s Future

When ETF.com reached out to Schwab for comment, company spokesperson Erin Montgomery said in an email that while fractional stock trading should debut sometime in 2020, the company has no current plans to introduce trading of fractional ETF shares.

"We are … exploring how fractional share trading could be applied in other areas, such as with ETFs, but our focus right now is on individual stocks," she wrote.

[Northern Flicker]

Until Vanguard ETFs allow the purchase of partial shares, and the direct transfer of proceeds from one to the other in an exchange, rather than a multi-step process, I'll continue to use mutual funds.

Vanguard supports fractional shares now for ETFs. You have to acquire them by conversion of mutual fund shares or automatic dividend reinvestment.

[ftobin]

I do not have any experience with ETF's but curious if we have the same problem with mutual funds? When I place an order for a mutual fund in the morning I have no idea what the closing price will be when its executed. Is this similar? Thanks

The problem does not exist for mutual funds: while you do not know the price, you cannot overpay, because you are guaranteed fund calculated NAV (though sometimes calculating NAV can be problematic for illiquids, but that's another story). With ETFs you are never guaranteed such a NAV execution (though some venues have considered having a closing-NAV based execution; I don't think they gained traction). For index funds you've effectively you've done the equivalent of participating in the closing cross for all the fund's holdings, allowing that it's not always actually executed that way underneath.

[fortyofforty]

Vanguard supports fractional shares now for ETFs. You have to acquire them by conversion of mutual fund shares or automatic dividend reinvestment.

Not good enough. The technology is obviously there, so when they figure out how to make them equal to mutual funds, such that I can acquire $1,000, not 46 shares with money leftover in a money market settlement fund, I'll stick with what works.

[Northern Flicker]

I believe you can do what you want currently. You can leave $3000 in the mutual fund share class, and convert the rest to ETF shares. Then if you have $1000 or even $100 to invest you would contribute to the mutual fund, not running into a minimum balance issue, and convert the amount in excess of $3000 to ETF shares.

[jhfenton]

I believe you can do what you want currently. You can leave $3000 in the mutual fund share class, and convert the rest to ETF shares. Then if you have $1000 or even $100 to invest you would contribute to the mutual fund, not running into a minimum balance issue, and convert the amount in excess of $3000 to ETF shares.

You can do that. and you don't even have to keep $3,000. I used to keep dual positions in VSS/Vanguard FTSE All-world ex-US Small Cap and VFSVX, the Investor shares. VSS often traded at a premium in 2016-2018, so I would usually buy VFSVX throughout the year and periodically call to convert everything over ~$1,000 to VSS. There is really no minimum balance required to keep a fund position open. (If there are active Investor shares, and you dip below the Admiral minimum, they can downgrade your shares. But the Investor shares for the index Admiral shares with a $3,000 minimum are now basically defunct.)