Should I convert taxable accounts of Vanguard MF to ETF

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WolfgangPauli
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Should I convert taxable accounts of Vanguard MF to ETF

Post by WolfgangPauli » Tue Oct 01, 2019 7:38 pm

I have toyed with this and since, within Vanguard, it is a tax free event, should I convert to the ETF equivalent? I am starting to think the ETF equivalent fund would be better in case there is a bit of a run on the MF requiring them to sell and driving huge cap gains to me. Thoughts?
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Silence Dogood
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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by Silence Dogood » Tue Oct 01, 2019 7:49 pm

WolfgangPauli wrote:
Tue Oct 01, 2019 7:38 pm
I am starting to think the ETF equivalent fund would be better in case there is a bit of a run on the MF requiring them to sell and driving huge cap gains to me.
What does this statement mean?

retired@50
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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by retired@50 » Tue Oct 01, 2019 7:51 pm

I don't see a "run" as much of a risk, although not impossible. I'd be more concerned with your current situation regarding whether or not you're young and still accumulating money in the fund(s) or if you're retired and are just holding or occasionally selling the fund(s). If you're still in accumulation phase, then I'd prefer the mutual fund Admiral share class since you won't be faced with bid/ask spreads and dealing with buying only during open market times. I'd rather see an accumulator just set it and forget it, buying every two weeks for years and years is how I did it... If you're a retiree, then there can be a slight cost advantage to the ETF share class. A single basis point on a million dollars translates to $100 per year. Best of luck.
This is one person's opinion. Nothing more.

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WolfgangPauli
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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by WolfgangPauli » Tue Oct 01, 2019 7:56 pm

Silence Dogood wrote:
Tue Oct 01, 2019 7:49 pm
WolfgangPauli wrote:
Tue Oct 01, 2019 7:38 pm
I am starting to think the ETF equivalent fund would be better in case there is a bit of a run on the MF requiring them to sell and driving huge cap gains to me.
What does this statement mean?
I thought one disadvantage of a MF is if there is a lot of selling of the fund by fund owners then the fund itself has to sell shares of stock to pay the fund owners. When they do this the cap gains are distributed across all.. so, again I thought, the ETF would be more efficient as if someone sells their shares that is just them and it has no effect on me. See: https://www.investopedia.com/articles/i ... ciency.asp

"Comprehensively, ETFs usually generate fewer capital gain distributions overall which can make them somewhat more tax efficient than mutual funds."
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jocdoc
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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by jocdoc » Tue Oct 01, 2019 8:19 pm

vfmf ( multifactor etf) is not a share class of vfmfx (multifactor fund) per Vanguard. They are two separate funds.

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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by jocdoc » Tue Oct 01, 2019 8:21 pm

vfmf ( multifactor etf) is not a share class of vfmfx (multifactor fund) per Vanguard. They are two separate funds. you cannot convert from the mutual fund to the etf. I tried to this earlier this year.

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House Blend
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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by House Blend » Wed Oct 02, 2019 8:31 am

WolfgangPauli wrote:
Tue Oct 01, 2019 7:56 pm
Silence Dogood wrote:
Tue Oct 01, 2019 7:49 pm
WolfgangPauli wrote:
Tue Oct 01, 2019 7:38 pm
I am starting to think the ETF equivalent fund would be better in case there is a bit of a run on the MF requiring them to sell and driving huge cap gains to me.
What does this statement mean?
I thought one disadvantage of a MF is if there is a lot of selling of the fund by fund owners then the fund itself has to sell shares of stock to pay the fund owners. When they do this the cap gains are distributed across all.. so, again I thought, the ETF would be more efficient as if someone sells their shares that is just them and it has no effect on me.
However, for Vanguard mutual funds that are eligible for ETF conversions, this is completely wrong.

Vanguard has a patent that in effect allows the mutual fund to share in the tax-efficiency of the ETF.

For example, since the inception of VTI (the Total Stock Market ETF) sometime in 2001(?) the corresponding Total Stock Market mutual funds have never distributed capital gains.

There may be good reasons for converting your VG mutual funds to ETFs (lower ER, or portability, to name two), but avoiding capital gains distributions is not one of them.

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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by Jack FFR1846 » Wed Oct 02, 2019 8:37 am

The advantages of going to ETF are that the cost may be slightly cheaper and if you want to move the account somewhere else, it can easily be done in kind.

Just a warning......if you call Vanguard and ask to convert your MF to an ETF and they tell you that you'll have to sell the MF, let it settle, then buy the ETF, you've called the patented "we always give you wrong information" number at Vanguard. You'll need to find the super secret ETF telephone number and call that. This happened to me and was the push I needed to just leave.
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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by jeffyscott » Wed Oct 02, 2019 8:47 am

House Blend wrote:
Wed Oct 02, 2019 8:31 am
WolfgangPauli wrote:
Tue Oct 01, 2019 7:56 pm
Silence Dogood wrote:
Tue Oct 01, 2019 7:49 pm
WolfgangPauli wrote:
Tue Oct 01, 2019 7:38 pm
I am starting to think the ETF equivalent fund would be better in case there is a bit of a run on the MF requiring them to sell and driving huge cap gains to me.
What does this statement mean?
I thought one disadvantage of a MF is if there is a lot of selling of the fund by fund owners then the fund itself has to sell shares of stock to pay the fund owners. When they do this the cap gains are distributed across all.. so, again I thought, the ETF would be more efficient as if someone sells their shares that is just them and it has no effect on me.
However, for Vanguard mutual funds that are eligible for ETF conversions, this is completely wrong.

Vanguard has a patent that in effect allows the mutual fund to share in the tax-efficiency of the ETF.

For example, since the inception of VTI (the Total Stock Market ETF) sometime in 2001(?) the corresponding Total Stock Market mutual funds have never distributed capital gains.
In addition, if an there were to be a distribution of cap gains, it would be distributed to all share classes. So the distribution would go to both the mutual fund and the ETF shareholders.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by abuss368 » Wed Oct 02, 2019 9:04 am

There are a lot of posts on this. Probably not a big change but I won’t do it personally until Vanguard offers a real “year to date” statement. This is offered with mutual funds. Once a year I save our December statement and not the other quarters. That statement has all transactions for the entire year on it.

I am not sure why this is an issue for Vanguard.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by abuss368 » Wed Oct 02, 2019 9:05 am

Sale of money market finds is not reported on Schedule D as there are no capital gains or losses. Form 1099 Div for dividends only.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

Scooter57
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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by Scooter57 » Wed Oct 02, 2019 6:20 pm

ETF prices can get very out of whack during extreme events and Vanguard will almost always makes it impossible to sign on and trade during those events. At least with funds you get the actual NAV at closing and you only need to get in for a brief time to put in the order. The flash crashes with ETFs bother me.

ETFs also post prices every minute and can encourage obsessional watching. Funds are more boring and don't raise dopamine levels or stimulate gambling tendencies.

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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by Northern Flicker » Thu Oct 03, 2019 1:40 am

WolfgangPauli wrote:
Tue Oct 01, 2019 7:38 pm
I have toyed with this and since, within Vanguard, it is a tax free event, should I convert to the ETF equivalent? I am starting to think the ETF equivalent fund would be better in case there is a bit of a run on the MF requiring them to sell and driving huge cap gains to me. Thoughts?
In the highly unlikely case that capital gains did need to be distributed, they would apply to both the ETF and MF. But active trading of mutual fund shares can affect mutual fund investors. ETFs do not have this defect.

If your holding period is long, the transaction costs of selling (bid-ask spreads, possibly selling at a discount to NAV, possible commission) should be a negligible part of return, but the ETF should have a slightly higher return due to being 100% invested (At least I don’t believe that the Vanguard structure of the MF and ETF being the same fund means that ETF shares have a cash position like the MF).
Risk is not a guarantor of return.

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jeffyscott
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Re: Should I convert taxable accounts of Vanguard MF to ETF

Post by jeffyscott » Thu Oct 03, 2019 8:44 am

Northern Flicker wrote:
Thu Oct 03, 2019 1:40 am
WolfgangPauli wrote:
Tue Oct 01, 2019 7:38 pm
I have toyed with this and since, within Vanguard, it is a tax free event, should I convert to the ETF equivalent? I am starting to think the ETF equivalent fund would be better in case there is a bit of a run on the MF requiring them to sell and driving huge cap gains to me. Thoughts?
In the highly unlikely case that capital gains did need to be distributed, they would apply to both the ETF and MF. But active trading of mutual fund shares can affect mutual fund investors. ETFs do not have this defect.
In the case of Vanguard index funds, the ETFs are a share class not a separate entity. So a distribution that occurs due to trading Vanguard index mutual fund shares would go to both ETF and mutual fund shareholders.
Time is your friend; impulse is your enemy. - John C. Bogle

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