ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
Paul Romano
Posts: 78
Joined: Tue Oct 04, 2016 12:47 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Paul Romano » Fri Apr 12, 2019 8:14 am

"Falling Fees Give Investors More Choices. Just Be Careful Using Them."


"The Bogleheads, a group of admirers of John C. Bogle — the founder of the Vanguard Group and the godfather of low-cost investing — often recommend a simple, three-fund portfolio that tracks the total United States stock market, international stock markets and the domestic investment-grade bond market. Through 2018, such a portfolio, with 60 percent allocated to stocks and 40 percent to bonds, returned 8.2 percent, annualized over 10 years and 5.57 percent over 20 years.

A fee price war is underway. In a February filing, for example, the Vanguard Group said it was reducing fees on 10 funds with combined assets of $176 billion. Then SoFi, an online lender, said it planned to offer zero-fee E.T.F.s, while Charles Schwab and Fidelity increased the numbers of E.T.F.s. that could be traded without commissions. State Street Global Advisors, Defiance, BlackRock and DWS also announced that they were starting new low-fee funds, while JPMorgan Chase cut the fees on one of its United States stock funds to 0.02 percent.

By the end of 2018, XTF, a fund analysis firm, found that nearly three-quarters of all assets in E.T.F.s were held in funds with expense ratios of less than 0.2 percent — just $2 for every $1,000 invested."



https://www.nytimes.com/2019/04/12/bus ... reful.html

Independent George
Posts: 400
Joined: Wed Feb 17, 2016 12:13 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Independent George » Fri Apr 12, 2019 10:06 am

I think this is the 2nd most relevant paragraph:
The explosion of cheap funds has created some dangerous temptations for investors, however. For one thing, the ability to buy and sell E.T.F.s just like stocks can encourage too much daily trading, with associated expenses that eat into returns. Some funds are narrow in focus and not suitable for all portfolios. Simply because a fund is cheap does not mean that it’s a wise investment.
I've encountered a few people lately that talk about churning ETFs to try and make gains off of intra-day volatility. That just seems to miss the entire point of buying the indices in the first place.

User avatar
nisiprius
Advisory Board
Posts: 37994
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

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by nisiprius » Fri Apr 12, 2019 11:27 am

Someone who uses ETFs has objected to my posting, as being insulting to anybody who invests in ETFs (which, for the record, includes me--though not currently). Accordingly, I'm deleting it.
Last edited by nisiprius on Sat Apr 13, 2019 6:33 pm, edited 1 time in total.
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.

Mofritty
Posts: 68
Joined: Thu Nov 06, 2014 1:58 pm
Location: "Somewhere in the middle of America"

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Mofritty » Fri Apr 12, 2019 11:51 am

“The explosion of cheap funds has created some dangerous temptations for investors, however. For one thing, the ability to buy and sell E.T.F.s just like stocks can encourage too much daily trading, with associated expenses that eat into returns. Some funds are narrow in focus and not suitable for all portfolios. Simply because a fund is cheap does not mean that it’s a wise investment.”

Reads just like a plaque you might find in the main lobby of Edward Jones’ corporate headquarters.

User avatar
Earl Lemongrab
Posts: 7011
Joined: Tue Jun 10, 2014 1:14 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Earl Lemongrab » Fri Apr 12, 2019 3:04 pm

Edited from the original.

I'm not sure at all that I agree that the sole or even main purpose of ETFs was to facilitate "trading", at least meant short-term speculative trading. I think it was a way for new players to introduce low-cost funds without having to go the full mutual fund route will all the baggage there.

It think most of the people interested in trading as an end in itself probably don't use broad index products. They'll be more interested in individual stocks.

Many people here use ETFs to good purpose. It's a great way to build a low-cost portfolio that is extremely portable.
Last edited by Earl Lemongrab on Sat Apr 13, 2019 6:55 pm, edited 1 time in total.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

aednichols
Posts: 15
Joined: Mon Nov 21, 2016 4:44 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by aednichols » Fri Apr 12, 2019 3:15 pm

Earl Lemongrab wrote:
Fri Apr 12, 2019 3:04 pm
nisiprius wrote:
Fri Apr 12, 2019 11:27 am
ETFs are grape bricks.
Are you seriously saying the Vanguard started providing ETFs to facillitate short-term trading?
Gus Sauter says pretty much that on episode 5 of Bogleheads on Investing. He described it as a way to let the trading types trade while protecting the mutual fund share holders from the effects.

columbia
Posts: 1414
Joined: Tue Aug 27, 2013 5:30 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by columbia » Fri Apr 12, 2019 4:04 pm

The T stands for Traded. :)

Independent George
Posts: 400
Joined: Wed Feb 17, 2016 12:13 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Independent George » Fri Apr 12, 2019 4:53 pm

The best reason to buy the Vanguard ETF rather than the mutual fund is if you were just starting out, and didn't have $3,000 to afford the minimum investment.

ByThePond
Posts: 138
Joined: Thu Dec 31, 2015 11:21 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by ByThePond » Fri Apr 12, 2019 5:17 pm

ETFs are grape bricks.
Aptly and hilariously put. Much like ordering a diet coke to accompany a double beef Whopper and super-sized fries. Pretty un-Boglehead IMO.

User avatar
Earl Lemongrab
Posts: 7011
Joined: Tue Jun 10, 2014 1:14 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Earl Lemongrab » Fri Apr 12, 2019 11:40 pm

ByThePond wrote:
Fri Apr 12, 2019 5:17 pm
ETFs are grape bricks.
Aptly and hilariously put. Much like ordering a diet coke to accompany a double beef Whopper and super-sized fries. Pretty un-Boglehead IMO.
Absolutely ridiculous. I can't stand these comments about "anti-Boglehead". There are MANY of us on the forum with good index portfolios that are composed of ETFs. Why would you be so insulting to the people here?
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

User avatar
StormShadow
Posts: 663
Joined: Thu Feb 09, 2012 6:20 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by StormShadow » Sat Apr 13, 2019 12:34 am

Paul Romano wrote:
Fri Apr 12, 2019 8:14 am
"The Bogleheads, a group of admirers of John C. Bogle — the founder of the Vanguard Group and the godfather of low-cost investing — often recommend a simple, three-fund portfolio that tracks the total United States stock market, international stock markets and the domestic investment-grade bond market.
I wonder if they mention the boglehead threads that promulgate investing in gold and crypto.

NYCwriter
Posts: 227
Joined: Thu Sep 17, 2015 12:46 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by NYCwriter » Sat Apr 13, 2019 12:35 am

But didn't Bogle himself call attention both to the risk of large passive inflows (a separate issue not discussed in NYT), and more specifically, to the tendency for ETFs to contribute to frequent trading?

The advantage of ETFs HAS been in lower minimums and ERs. For some, that IS significant. It's often a learned habit to recognize time in market instead of timing (the) market. This article isn't insulting Bogleheads, it's just calling attention to something Bogle himself recognized. ETFs offer a way to track intra-day prices. Nice, if you want to squeeze in that low bid, but something that can encourage fixation on the short-term.

The availability of low-cost trading platforms and DYI investing doesn't come with much useful advice. (This forum does.) Frequent trading is often enabled, and people fail to learn from it.

It also gives a nod to the most basic portfolio of all time: the 2-fund portfolio. (Well, that's easy for Buffet to say!) Still, it's pretty meta-Boglehead when you think about it. :D

DonIce
Posts: 421
Joined: Thu Feb 21, 2019 6:44 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by DonIce » Sat Apr 13, 2019 12:55 am

Earl Lemongrab wrote:
Fri Apr 12, 2019 11:40 pm
Absolutely ridiculous. I can't stand these comments about "anti-Boglehead". There are MANY of us on the forum with good index portfolios that are composed of ETFs. Why would you be so insulting to the people here?
Indeed. ETFs make way more sense to me than mutual funds.

Advantages of ETFs:
- Can be easily transferred from one brokerage to another. This is significant as which brokerages offer lower fees / better services constantly changes, plus you can collect bonuses by cycling from one brokerage to another if you feel like it
- Typically lower ERs by at least a few basis points
- Sometimes slightly more advantageous tax treatment
- Can be bought or sold at any time during the day at an exact, known price
- Can be bought/held on margin. Borrowing on margin can sometimes have advantages. Large margin debt can be obtained at lower rates than home mortgages and with no closing fees, etc. Margin interest is tax deductible up to the limit of your investment proceeds.
- Can be used as an underlying security for some income-generating option strategies which may sometimes be reasonable to use
Last edited by DonIce on Sat Apr 13, 2019 5:18 pm, edited 1 time in total.

columbia
Posts: 1414
Joined: Tue Aug 27, 2013 5:30 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by columbia » Sat Apr 13, 2019 6:07 am

DonIce wrote:
Sat Apr 13, 2019 12:55 am
Earl Lemongrab wrote:
Fri Apr 12, 2019 11:40 pm
Absolutely ridiculous. I can't stand these comments about "anti-Boglehead". There are MANY of us on the forum with good index portfolios that are composed of ETFs. Why would you be so insulting to the people here?
Indeed. ETFs make way more sense to me than mutual funds.

Advantages of ETFs:
- Can be easily transferred from one brokerage to another. This is significant as which brokerages offer lower fees / better services constantly changes, plus you can collect bonuses by cycling from one brokerage to another if you feel like it
- Typically lower ERs by at least a few basis points
- Sometimes slightly more advantageous tax treatment
- Can be bought or sold at any time during the day at an exact, known price
- Can be bought/held on margin. Borrowing on margin can sometimes have advantages. Large margin debt can be obtained at lower rates than home mortgages and with no closing fees, etc. Margin interest is tax deductible with no limit unlike mortgage interest.
- Can be used as an underlying security for some income-generating option strategies which may sometimes be reasonable to use

Sincere question:

Why was it “necessary” to create a distinct vehicle (ETFs) instead of just applying the more favorable tax treatment to mutual funds?

UKFred
Posts: 48
Joined: Thu Apr 20, 2017 9:58 am
Location: UK

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by UKFred » Sat Apr 13, 2019 7:59 am

In the UK, most platforms charge a percentage fee to hold mutual funds and a flat fee to hold ETFs. It makes more sense to use ETFs than their equivalent funds.

Just because they can be traded doesn’t mean that they have to be.

GoldenFinch
Posts: 1775
Joined: Mon Nov 10, 2014 11:34 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by GoldenFinch » Sat Apr 13, 2019 8:06 am

I only own ETFs at Schwab and I have found them to be annoying. I cannot use them to rebalance effectively because if I sell one, the shares “are not available to trade” for several days. I realize this may be unique to Schwab, but I’ve given up on them for future use.

student
Posts: 2989
Joined: Fri Apr 03, 2015 6:58 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by student » Sat Apr 13, 2019 8:18 am

GoldenFinch wrote:
Sat Apr 13, 2019 8:06 am
I only own ETFs at Schwab and I have found them to be annoying. I cannot use them to rebalance effectively because if I sell one, the shares “are not available to trade” for several days. I realize this may be unique to Schwab, but I’ve given up on them for future use.
Interesting. I have no issue doing this at Merrill Edge and Etrade. After a share is sold, although the fund is not settled yet, it is available to trade immediately.

User avatar
goingup
Posts: 3523
Joined: Tue Jan 26, 2010 1:02 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by goingup » Sat Apr 13, 2019 9:28 am

nisiprius wrote:
Fri Apr 12, 2019 11:27 am
But a reasonable person would surmise that grape bricks are for wine, and ETFs are for short-term speculating.
Thanks Nisi- what a clever post!

I also love Jack Bogle's quote about ETFs: “ETFs are like the famous Purdey shotgun. Great for killing big game in Africa and great for suicide.”

User avatar
whodidntante
Posts: 5229
Joined: Thu Jan 21, 2016 11:11 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by whodidntante » Sat Apr 13, 2019 10:11 am

nisiprius wrote:
Fri Apr 12, 2019 11:27 am
But a reasonable person would surmise that grape bricks are for wine, and ETFs are for short-term speculating.
You are spreading misinformation. Perhaps inadvertently, but spreading it nonetheless.

ETFs are structurally more efficient and that can translate to significant advantages to the buy and hold investor. Capital gains can be shed which allows for greater tax deferment. An ETF can carry razor thin cash margins, since the fund does not need to trade internally to meet redemptions or to invest inflows. All things being equal there is also less management overhead for ETFs, than to run a mutual fund that provides exactly the same exposure. This means they can be cheaper than mutual funds, and in the case of Vanguard, they actually are.

Biffer
Posts: 119
Joined: Wed Jan 30, 2013 4:34 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Biffer » Sat Apr 13, 2019 10:23 am

nisiprius wrote:
Fri Apr 12, 2019 11:27 am
ETFs are grape bricks.
...
Nothing about a grape brick forces you to use one to make wine, rather than "Delicious, Healthful, Refreshing, Invigorating GRAPE JUICE."
...
But a reasonable person would surmise that grape bricks are for wine, and ETFs are for short-term speculating.
It's quite a fun metaphor.

I happen to be one of the many Earl mentions who purchase ETFs for long term purposes (broadly diversified, very low spreads).

By this analogy, I guess that makes me a grape juice-swilling, teetotaling grape brick consumer.

And, for what it’s worth, the grape juice is: Delicious, Healthful, Refreshing, and Invigorating, thank you very much.

montanagirl
Posts: 1086
Joined: Thu Nov 19, 2009 4:55 pm
Location: Montana

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by montanagirl » Sat Apr 13, 2019 10:35 am

Independent George wrote:
Fri Apr 12, 2019 10:06 am
I think this is the 2nd most relevant paragraph:
The explosion of cheap funds has created some dangerous temptations for investors, however. For one thing, the ability to buy and sell E.T.F.s just like stocks can encourage too much daily trading, with associated expenses that eat into returns. Some funds are narrow in focus and not suitable for all portfolios. Simply because a fund is cheap does not mean that it’s a wise investment.
I've encountered a few people lately that talk about churning ETFs to try and make gains off of intra-day volatility. That just seems to miss the entire point of buying the indices in the first place.
Well ...ahem ... I've been playing sort of that way with 1% of my holdings, just to satsfy the urge to mess with things all the time. I don't think VG etf's are volatile enough for intraday, like leveraged funds would be. But you can't but those at vanguard. 😫

User avatar
JoMoney
Posts: 6709
Joined: Tue Jul 23, 2013 5:31 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by JoMoney » Sat Apr 13, 2019 10:44 am

Earl Lemongrab wrote:
Fri Apr 12, 2019 11:40 pm
ByThePond wrote:
Fri Apr 12, 2019 5:17 pm
ETFs are grape bricks.
Aptly and hilariously put. Much like ordering a diet coke to accompany a double beef Whopper and super-sized fries. Pretty un-Boglehead IMO.
Absolutely ridiculous. I can't stand these comments about "anti-Boglehead". There are MANY of us on the forum with good index portfolios that are composed of ETFs. Why would you be so insulting to the people here?
I don't like ETF's, but I do like a diet coke with my double cheeseburger. I like the the biting tangy taste of diet, and those empty calories are better spent on something savory :P
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
Earl Lemongrab
Posts: 7011
Joined: Tue Jun 10, 2014 1:14 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Earl Lemongrab » Sat Apr 13, 2019 11:31 am

columbia wrote:
Sat Apr 13, 2019 6:07 am
Why was it “necessary” to create a distinct vehicle (ETFs) instead of just applying the more favorable tax treatment to mutual funds?
It doesn't really apply to Vanguard products, but other ETFs can shed capital gains through the process of assembling/disassembling the ETFs. That way they aren't passed out to the shareholders. At Vanguard, the ETF process helps the traditional mutual funds avoid capital gains as well. You're welcome. I guess the "grape bricks" are pretty useful for all.
Last edited by Earl Lemongrab on Sat Apr 13, 2019 2:22 pm, edited 1 time in total.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

User avatar
Phineas J. Whoopee
Posts: 8139
Joined: Sun Dec 18, 2011 6:18 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Phineas J. Whoopee » Sat Apr 13, 2019 12:16 pm

columbia wrote:
Sat Apr 13, 2019 6:07 am
...
Sincere question:

Why was it “necessary” to create a distinct vehicle (ETFs) instead of just applying the more favorable tax treatment to mutual funds?
The law.

Specifically, if a mutual fund sells underlying shares it has to do so in a less tax-efficient manner than if an ETF rids itself of underlying shares.

ETFs have an arbitrage mechanism that is designed to, and mostly works to, keep the net asset value and the market price fairly close to each other. The mechanism is for each ETF there is at least one, and perhaps more than one, authorized participant, which contractually has the right to exchange a basket of securities for ETF shares, and to do the reverse, exchange ETF shares for the representative basket of securities. It's exchanging like for like, and therefore the transaction is not a taxable event.

ETFs are legally allowed to transfer the lowest-basis shares, without prorating across all shares.

Vanguard patented a method to combine ETF shares as a class within a mutual fund, which means the mutual fund enjoys the same tax benefit of ETFs. I believe the patent expires soon. I'm not sure I'm happy with the concept of patenting business methods, but that's the way the law stands right now.

With respect to why Congress wrote the laws that way you might contact your representative to ask the question.

Does that help?

PJW

Broken Man 1999
Posts: 2178
Joined: Wed Apr 08, 2015 11:31 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Broken Man 1999 » Sat Apr 13, 2019 1:05 pm

Perhaps those who consider using ETFs as being "unboglehead-like" should scan what the Head Boglehead (Mr. Bogle) had to say in his last book, Stay the Course: The Story of Vanguard and the Index Revolution. He even stated his support IF the ETF was bought to hold, and the ETF was for a broad-based index.

Mr Bogle was nowhere as doctrinaire as many people want to believe.

Why, it also seems that Mr Bogle changed his mind once or twice! Oh, the horror!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

cherijoh
Posts: 5492
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by cherijoh » Sat Apr 13, 2019 1:08 pm

Independent George wrote:
Fri Apr 12, 2019 4:53 pm
The best reason to buy the Vanguard ETF rather than the mutual fund is if you were just starting out, and didn't have $3,000 to afford the minimum investment.
In taxable, I own VTSAX as my domestic stock index fund and VEU as my international stock ETF. When I purchased VEU there was a noticable difference between the ER for the mutual fund version and the ETF. I think at the time you still needed $50K to get Admiral shares and far fewer funds had Admiral shares.

FYI - Holding the ETF doesn't inspire me with the urge to do more trading! And if other people are trading the ETFs it is no skin off my nose.

However, I still remember the days before I invested in index funds. I had taxable positions in lower cost no-load mutual funds and I was (as I am now) a buy-and-hold investor. Unfortunately, I did get stuck with the consequences of other people's trading then - large capital gains distributions that showed up in my account in December! :annoyed

JBTX
Posts: 4938
Joined: Wed Jul 26, 2017 12:46 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by JBTX » Sat Apr 13, 2019 4:25 pm

DonIce wrote:
Sat Apr 13, 2019 12:55 am
Earl Lemongrab wrote:
Fri Apr 12, 2019 11:40 pm
Absolutely ridiculous. I can't stand these comments about "anti-Boglehead". There are MANY of us on the forum with good index portfolios that are composed of ETFs. Why would you be so insulting to the people here?
Indeed. ETFs make way more sense to me than mutual funds.

Advantages of ETFs:
- Can be easily transferred from one brokerage to another. This is significant as which brokerages offer lower fees / better services constantly changes, plus you can collect bonuses by cycling from one brokerage to another if you feel like it
- Typically lower ERs by at least a few basis points
- Sometimes slightly more advantageous tax treatment
- Can be bought or sold at any time during the day at an exact, known price
- Can be bought/held on margin. Borrowing on margin can sometimes have advantages. Large margin debt can be obtained at lower rates than home mortgages and with no closing fees, etc. Margin interest is tax deductible with no limit unlike mortgage interest.
- Can be used as an underlying security for some income-generating option strategies which may sometimes be reasonable to use

Just to clarify, margin interest is only deductible if you itemize and limited to investment income although can be carried forward.

https://www.schwab.com/public/schwab/in ... t-expenses

I'm curious about your statements on large margin debt rates being lower than mortgages. Rates here are shown to be 8.0% or higher. Where so you see low margin rates?

https://www.schwab.com/public/schwab/in ... n_accounts

Trader Joe
Posts: 600
Joined: Fri Apr 25, 2014 6:38 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Trader Joe » Sat Apr 13, 2019 4:35 pm

Paul Romano wrote:
Fri Apr 12, 2019 8:14 am
"Falling Fees Give Investors More Choices. Just Be Careful Using Them."


"The Bogleheads, a group of admirers of John C. Bogle — the founder of the Vanguard Group and the godfather of low-cost investing — often recommend a simple, three-fund portfolio that tracks the total United States stock market, international stock markets and the domestic investment-grade bond market. Through 2018, such a portfolio, with 60 percent allocated to stocks and 40 percent to bonds, returned 8.2 percent, annualized over 10 years and 5.57 percent over 20 years.

A fee price war is underway. In a February filing, for example, the Vanguard Group said it was reducing fees on 10 funds with combined assets of $176 billion. Then SoFi, an online lender, said it planned to offer zero-fee E.T.F.s, while Charles Schwab and Fidelity increased the numbers of E.T.F.s. that could be traded without commissions. State Street Global Advisors, Defiance, BlackRock and DWS also announced that they were starting new low-fee funds, while JPMorgan Chase cut the fees on one of its United States stock funds to 0.02 percent.

By the end of 2018, XTF, a fund analysis firm, found that nearly three-quarters of all assets in E.T.F.s were held in funds with expense ratios of less than 0.2 percent — just $2 for every $1,000 invested."



https://www.nytimes.com/2019/04/12/bus ... reful.html
I refuse to click on that link, but overall, it is nice to hear that this forum is receiving more publicity.

dharrythomas
Posts: 927
Joined: Tue Jun 19, 2007 4:46 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by dharrythomas » Sat Apr 13, 2019 4:53 pm

aednichols wrote:
Fri Apr 12, 2019 3:15 pm
Earl Lemongrab wrote:
Fri Apr 12, 2019 3:04 pm
nisiprius wrote:
Fri Apr 12, 2019 11:27 am
ETFs are grape bricks.
Are you seriously saying the Vanguard started providing ETFs to facillitate short-term trading?
Gus Sauter says pretty much that on episode 5 of Bogleheads on Investing. He described it as a way to let the trading types trade while protecting the mutual fund share holders from the effects.
ETFs are grape bricks. They were designed specifically to facilitate short term trading. There are some that use ETFs for long term investing as I suspect there were those that used grape bricks for non-fermented juice. Rather than being personally insulted look at the transaction numbers on ETFs, turnover alone provides a great deal of evidence that ETFs are being used by day traders. The Financial Times reported that 30% of trading volume and 23% of value traded was ETFs in January 2017. https://www.ft.com/content/6dabad28-e19 ... 357a75844a

So the volume lead is in smaller blocks.

Never confuse what you use something for with the design purpose. ETFs were designed to promote trading and to extract profits for financial firms through trading fees and the spread. The question is how do I convince these index investors to trade so we make money?

remomnyc
Posts: 652
Joined: Mon Jan 04, 2016 4:27 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by remomnyc » Sat Apr 13, 2019 5:00 pm

GoldenFinch wrote:
Sat Apr 13, 2019 8:06 am
I only own ETFs at Schwab and I have found them to be annoying. I cannot use them to rebalance effectively because if I sell one, the shares “are not available to trade” for several days. I realize this may be unique to Schwab, but I’ve given up on them for future use.
I use all-in-one-trade ticket at Schwab to sell my ETFs and immediately redeploy before settlement.

DonIce
Posts: 421
Joined: Thu Feb 21, 2019 6:44 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by DonIce » Sat Apr 13, 2019 5:11 pm

JBTX wrote:
Sat Apr 13, 2019 4:25 pm
Just to clarify, margin interest is only deductible if you itemize and limited to investment income although can be carried forward.

https://www.schwab.com/public/schwab/in ... t-expenses

I'm curious about your statements on large margin debt rates being lower than mortgages. Rates here are shown to be 8.0% or higher. Where so you see low margin rates?

https://www.schwab.com/public/schwab/in ... n_accounts
Interactive Brokers:

https://www.interactivebrokers.com/en/index.php?f=1595

And thanks for pointing out the limit on the margin interest tax deduction, I forgot that.

User avatar
nisiprius
Advisory Board
Posts: 37994
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

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by nisiprius » Sat Apr 13, 2019 6:44 pm

For the record, I've used ETFs myself. I didn't mean to cast aspersions on Bogleheads who use ETFs in reasonable ways--not for short-term speculation.

Typically, at brokerage-and-mutual-fund-company X, the only index mutual funds available without a transaction fee are X's own funds. If you want one from another company, typically those transaction fees are high (e.g. $50). In simple mainstream asset classes, they will often good, name-brand index ETFs from a choice of fund companies for low fees (e.g. $6) and, often, no fees. So, typically, ETFs expand the range of low-expense-ratio, low-transaction-fee index fund choices.

I am less enthusiastic about ETFs offering access to somewhat specialized asset classes that may not be available as mutual funds, but, that, too is legitimate.

This is by way of apologizing to people who were offended by my posting.
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.

MindBogler
Posts: 772
Joined: Wed Apr 17, 2013 12:05 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by MindBogler » Sat Apr 13, 2019 6:57 pm

nisiprius wrote:
Sat Apr 13, 2019 6:44 pm
This is by way of apologizing to people who were offended by my posting.
I thought the grape brick post was rather funny (and interesting). I had never heard of such a thing.

I use ETFs for about 75pct of my holdings. I like the agility and ease of transaction. Mutual funds are too slow to settle for my taste.

No offense taken.

User avatar
goodenyou
Posts: 1600
Joined: Sun Jan 31, 2010 11:57 pm
Location: Skating to Where the Puck is Going to Be..or on the golf course

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by goodenyou » Sat Apr 13, 2019 7:29 pm

I confess. I am a Grape Brick Kool Aid ETF Drinker as well. I have held VTI at Schwab for many years. I started my investing at Schwab years ago and it is held in a Family Limited Partnership Business Account. It's a pain to transfer the assets to Vanguard from the business account, so I have just kept the account. I haven't added to the position or sold since I opened a separate personal Vanguard account 10 years ago. I only buy VTSAX now. I guess it is a Frozen Grape Brick.

Seriously, thanks for the history lesson. :sharebeer
Last edited by goodenyou on Sat Apr 13, 2019 7:32 pm, edited 1 time in total.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

User avatar
Dialectical Investor
Posts: 249
Joined: Mon Dec 03, 2018 11:41 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Dialectical Investor » Sat Apr 13, 2019 7:32 pm

MindBogler wrote:
Sat Apr 13, 2019 6:57 pm

I use ETFs for about 75pct of my holdings. I like the agility and ease of transaction. Mutual funds are too slow to settle for my taste.
Interesting. In my experince, mutual funds settle faster than ETFs.

User avatar
tooluser
Posts: 353
Joined: Sat Oct 01, 2011 7:04 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by tooluser » Sat Apr 13, 2019 8:28 pm

Around here they sell "Chili Bricks" in the grocery store. Mixed with water, they easily make a good chili. I am very afraid of what would happen should I put one in a jug with a gallon of water for 20 days in the back of my cupboard!

All tools can be misused.

In my case, ETFs allowed me to start a low cost ten-speed portfolio with not a lot of cash. If I had had to buy into Admiral share mutual funds (to equal the ER cost) I would never have been able to get started. That said, I might have started a three-speed portfolio, which has had lower (but respectable) returns.

GoldenFinch
Posts: 1775
Joined: Mon Nov 10, 2014 11:34 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by GoldenFinch » Sat Apr 13, 2019 8:33 pm

remomnyc wrote:
Sat Apr 13, 2019 5:00 pm
GoldenFinch wrote:
Sat Apr 13, 2019 8:06 am
I only own ETFs at Schwab and I have found them to be annoying. I cannot use them to rebalance effectively because if I sell one, the shares “are not available to trade” for several days. I realize this may be unique to Schwab, but I’ve given up on them for future use.
I use all-in-one-trade ticket at Schwab to sell my ETFs and immediately redeploy before settlement.
Thank you. I didn’t know about that, but will try it next time.

Fallible
Posts: 6784
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Fallible » Sat Apr 13, 2019 8:46 pm

Broken Man 1999 wrote:
Sat Apr 13, 2019 1:05 pm
Perhaps those who consider using ETFs as being "unboglehead-like" should scan what the Head Boglehead (Mr. Bogle) had to say in his last book, Stay the Course: The Story of Vanguard and the Index Revolution. He even stated his support IF the ETF was bought to hold, and the ETF was for a broad-based index.

Mr Bogle was nowhere as doctrinaire as many people want to believe.

Why, it also seems that Mr Bogle changed his mind once or twice! Oh, the horror!

Broken Man 1999
Good points (last line amusingly made). If the temptation to trade and how it can lead to excessive trading is not understood and appreciated, then those concerns for the average investor that Jack expressed won't be understood.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

User avatar
StevieG72
Posts: 910
Joined: Wed Feb 05, 2014 9:00 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by StevieG72 » Sun Apr 14, 2019 5:13 am

Independent George wrote:
Fri Apr 12, 2019 4:53 pm
The best reason to buy the Vanguard ETF rather than the mutual fund is if you were just starting out, and didn't have $3,000 to afford the minimum investment.
+1

I started investing with ETF's because I had limited funds to start with, no frequent trading. (of course this was back when fees were higher for buying / selling shares)

Having read an article in Money magazine (2005 issue) about how to start investing for $100 buying 5 ETF's was the beginning of my investing journey. For those that are curious the five were AGG (Bond), EFA (International), IYM (Basic Materials), IYR (Real Estate), and VTI (Vangaurd Total Mkt).
Fools think their own way is right, but the wise listen to others.

User avatar
whodidntante
Posts: 5229
Joined: Thu Jan 21, 2016 11:11 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by whodidntante » Sun Apr 14, 2019 7:19 am

The grape brick thread. :twisted:

hudson
Posts: 1677
Joined: Fri Apr 06, 2007 9:15 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by hudson » Sun Apr 14, 2019 8:11 am

Independent George wrote:
Fri Apr 12, 2019 4:53 pm
The best reason to buy the Vanguard ETF rather than the mutual fund is if you were just starting out, and didn't have $3,000 to afford the minimum investment.
In Vanguard, I use ETFs like MUB and VTEB (low expense muni etfs) to try to keep my settlement fund empty...especially when my main Vanguard intermediate muni fund has been locked for 30 days for "excessive trading". I should probably just get another mutual fund and use it. I like to keep enough in VTEB or MUB in case I need to move cash to my checking account...that way I don't get the "excessive trading" penalty.

I use ETFs in a small Roth account; the major holding is a 5 year brokered CD. I'll use VMBS or BND (Vang. bond ETFs) to drain the interest payments from the CD placed into the settlement fund. When I get 3K in the ETFs, I'll change over to a fund.

I don't use ETFs in my Vanguard IRA. The major holding is a 5 year CD...interest to the settlement fund. I had to leave enough outside of the IRA for RMDs...required minimum distributions. I use a relatively safe Vanguard mutual fund that lets me zero out the settlement fund after every interest payment....no ETF needed

Therefore, I hold 4 ETFs and use them as tools not for trading.

MindBogler
Posts: 772
Joined: Wed Apr 17, 2013 12:05 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by MindBogler » Sun Apr 14, 2019 12:52 pm

Dialectical Investor wrote:
Sat Apr 13, 2019 7:32 pm
MindBogler wrote:
Sat Apr 13, 2019 6:57 pm

I use ETFs for about 75pct of my holdings. I like the agility and ease of transaction. Mutual funds are too slow to settle for my taste.
Interesting. In my experince, mutual funds settle faster than ETFs.
I can sell an ETF and buy another one immediately. That isn't true of mutual funds at any broker I've ever used. Case in point, I had a rather extensive, multi-account rebalancing operation a few weeks back which I executed from start to finish in under 15 minutes using ETFs. With mutual funds that operation would take at least 2 days without some kind of brokerage-specific auto-rebalance function.

User avatar
Dialectical Investor
Posts: 249
Joined: Mon Dec 03, 2018 11:41 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Dialectical Investor » Sun Apr 14, 2019 1:10 pm

MindBogler wrote:
Sun Apr 14, 2019 12:52 pm
Dialectical Investor wrote:
Sat Apr 13, 2019 7:32 pm
MindBogler wrote:
Sat Apr 13, 2019 6:57 pm

I use ETFs for about 75pct of my holdings. I like the agility and ease of transaction. Mutual funds are too slow to settle for my taste.
Interesting. In my experince, mutual funds settle faster than ETFs.
I can sell an ETF and buy another one immediately. That isn't true of mutual funds at any broker I've ever used. Case in point, I had a rather extensive, multi-account rebalancing operation a few weeks back which I executed from start to finish in under 15 minutes using ETFs. With mutual funds that operation would take at least 2 days without some kind of brokerage-specific auto-rebalance function.
Mutual funds usually settle in one day. ETFs usually settle in two or three days. If I'm trying to move money between accounts, the mutual funds are usually more efficient because they are quicker to settle. I also find mutual fund transactions more efficient because I don't have to think about spreads or limit orders, so I can enter orders very quickly. I don't doubt there are certain combinations of transactions for which ETFs are more efficient to use for reasons other than settlement times. (I have some ETFs, too). I suppose those occasions as well as what the broker allows you to do with the unsettled funds in the meantime can vary by broker.

MindBogler
Posts: 772
Joined: Wed Apr 17, 2013 12:05 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by MindBogler » Sun Apr 14, 2019 2:50 pm

Dialectical Investor wrote:
Sun Apr 14, 2019 1:10 pm
Mutual funds usually settle in one day. ETFs usually settle in two or three days. If I'm trying to move money between accounts, the mutual funds are usually more efficient because they are quicker to settle. I also find mutual fund transactions more efficient because I don't have to think about spreads or limit orders, so I can enter orders very quickly. I don't doubt there are certain combinations of transactions for which ETFs are more efficient to use for reasons other than settlement times. (I have some ETFs, too). I suppose those occasions as well as what the broker allows you to do with the unsettled funds in the meantime can vary by broker.
I am using settled funds incorrectly. I mean that I can sell and use unsettled funds immediately to buy something else with an ETF. :)

texasdiver
Posts: 2930
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by texasdiver » Sun Apr 14, 2019 9:20 pm

There are some pools of money for which ETFs are the only viable investment route. For example, in my former HSA account the only investment option was through TD Ameritrade buying ETFs. So I bought Vanguard ETFs.

I did, however, find it somewhat more awkward and nerve racking than simply buying plain jane mutual funds through Vanguard's web site like I've been doing for 20 years with the rest of my investments.

What puts me off about ETFs is that I'm alway afraid I'm going to make the wrong kind of trade and somehow get screwed by a flash crash or something. I know, that's pretty unlikely with a Vanguard index fund ETF, but still, I'm really not that interested in learning all the trading lingo and options just to make my fund buying process more complex than it has to be.

Case59
Posts: 122
Joined: Fri Dec 30, 2011 12:31 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Case59 » Sun Apr 14, 2019 9:28 pm

Do they still make grape bricks? Where can one buy them?

Asking for a friend.
"Most quotations on the internet are incorrect."-Mark Twain

typical.investor
Posts: 757
Joined: Mon Jun 11, 2018 3:17 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by typical.investor » Sun Apr 14, 2019 9:55 pm

Ferdinand2014 wrote:
Fri Apr 12, 2019 3:46 pm
nisiprius wrote:
Fri Apr 12, 2019 11:27 am
But a reasonable person would surmise that grape bricks are for wine, and ETFs are for short-term speculating.
I love it! Fascinating prohibition history and tie in to ETF's. The bricks could even be referred to as 'creation unit blocks'.

As Jack Bogle has said ETF's are a 'Trader to the cause'
I'm really happy that nisiprius and Jack Bogle have all the tax-deferred room they will ever need, and can legally purchase mutual funds.

As for some of us who 1) need to do much taxable investing and 2) are frozen out of Vanguard, ETFs are far preferable for buying and holding.

I call non-sense on the claim that ETFs are detrimental to best investing practices. Without ETFs I am only legally able to buy individual stocks. Kiss indexing good-bye.

Mutual funds are simply stupid when it comes to taxation. Why should I be liable for capital gains when someone else sells?

Some people kill when driving drunk. You drive. Therefore you are a killer.

That's the same logic you are applying to ETFs. Can't you see it?

Why the animosity towards ETFs? How are they hurting you?

ETFs are all I have. Are you suggesting I not invest? Or are you suggesting individual stocks are better?

Ferdinand2014
Posts: 180
Joined: Mon Dec 17, 2018 6:49 pm
Location: New England

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by Ferdinand2014 » Sun Apr 14, 2019 10:12 pm

typical.investor wrote:
Sun Apr 14, 2019 9:55 pm
Ferdinand2014 wrote:
Fri Apr 12, 2019 3:46 pm
nisiprius wrote:
Fri Apr 12, 2019 11:27 am
But a reasonable person would surmise that grape bricks are for wine, and ETFs are for short-term speculating.
I love it! Fascinating prohibition history and tie in to ETF's. The bricks could even be referred to as 'creation unit blocks'.

As Jack Bogle has said ETF's are a 'Trader to the cause'
I'm really happy that nisiprius and Jack Bogle have all the tax-deferred room they will ever need, and can legally purchase mutual funds.

As for some of us who 1) need to do much taxable investing and 2) are frozen out of Vanguard, ETFs are far preferable for buying and holding.

I call non-sense on the claim that ETFs are detrimental to best investing practices. Without ETFs I am only legally able to buy individual stocks. Kiss indexing good-bye.

Mutual funds are simply stupid when it comes to taxation. Why should I be liable for capital gains when someone else sells?

Some people kill when driving drunk. You drive. Therefore you are a killer.

That's the same logic you are applying to ETFs. Can't you see it?

Why the animosity towards ETFs? How are they hurting you?

ETFs are all I have. Are you suggesting I not invest? Or are you suggesting individual stocks are better?
There is nothing at all wrong with ETF’s as long as the individuals utilizing them ignore the day trading aspect. They in most cases, as you point out, offer a small tax advantage in taxable accounts. Jack Bogle points this out in his chapter on ETF’s. The problem is human nature is well, human nature. I purposely choose mutual funds precisely because I cannot trade them freely. My accounts are at Fidelity and the limit on round trips without trading penalty restrictions is every 30 days with exceptions such as RMD’s. I also have at least theoretical concerns about bid/ask spreads and potential mispricing and counterparty risk that is in theory less of a concern with traditional mutual funds. There have been examples of haywire etf pricing not matching the NAV:

https://www.barrons.com/articles/the-gr ... 1441434195

So for me, whatever small tax advantage in taxable accounts is outweighed by my above concerns. In addition, at least with my options at Fidelity, the corresponding mutual funds have lower ER then the ETF equivalent. This may not be true for other institutions.
Last edited by Ferdinand2014 on Sun Apr 14, 2019 10:19 pm, edited 3 times in total.

pascalwager
Posts: 1436
Joined: Mon Oct 31, 2011 8:36 pm

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by pascalwager » Mon Apr 15, 2019 2:38 am

Case59 wrote:
Sun Apr 14, 2019 9:28 pm
Do they still make grape bricks? Where can one buy them?

Asking for a friend.
After midnight, in a warehouse down by the harbor. Tell your friend to come alone, knock three times...then twice more.

ByThePond
Posts: 138
Joined: Thu Dec 31, 2015 11:21 am

ETFs vs. Mutual Funds ("Bogleheads Mentioned in the NYT")

Post by ByThePond » Mon Apr 15, 2019 7:29 am

Earl Lemongrab wrote:
Fri Apr 12, 2019 11:40 pm
ByThePond wrote:
Fri Apr 12, 2019 5:17 pm
ETFs are grape bricks.
Aptly and hilariously put. Much like ordering a diet coke to accompany a double beef Whopper and super-sized fries. Pretty un-Boglehead IMO.
Absolutely ridiculous. I can't stand these comments about "anti-Boglehead". There are MANY of us on the forum with good index portfolios that are composed of ETFs. Why would you be so insulting to the people here?
Sorry you feel that way.

However, I agree with Nisiprius that there is an element that seems contrary to buy-and-hold inherent in an instrument that is designed to be traded. Not that they can't be useful.
I don't think that's ridiculous at all. Nothing "anti-Boglehead" at all, and nothing insulting implied.

Being called "absolutely ridiculous" , however, IS explicitly insulting.

Post Reply