ETFs vs Mutual Funds in Retirement Accounts

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justsomeguy2018
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ETFs vs Mutual Funds in Retirement Accounts

Post by justsomeguy2018 » Thu Dec 06, 2018 11:42 am

Not factoring in ERs, are there any advantages or disadvantages to having mutual funds vs ETFs in retirement accounts? E.g. in the HSA, Roth IRA, trad IRA. E.g. VTI vs the Vanguard total stock market mutual fund. Again, looking for differences other than the ERs. Seems like an advantage if an ETF is you can get in and out of it quickly (though guessing this board will call that a disadvantage as it may lead to bad decision). E.g. say you are getting ready to make your contribution and the market is soaring on that day. With ETF you csn get in earlier at lower price, vs NAV of mutual fund at end of day(of course, market could turn at mid day i suppose).

Chip
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Chip » Thu Dec 06, 2018 11:46 am

No difference in tax-advantaged accounts.

ralph124cf
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by ralph124cf » Thu Dec 06, 2018 11:49 am

With an ETF you can enter a limit order to buy or sell, and leave it open for a month or two.

Not everybody agrees that this is a good idea.

An ETF will normally incur a commission with each buy or sell transaction, therefore it is less advantageous for DCA during the accumulation years. If you are buying $10,000 or more at a time, the commission will get lost in the noise.

Ralph
Last edited by ralph124cf on Thu Dec 06, 2018 12:06 pm, edited 1 time in total.

Silk McCue
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Silk McCue » Thu Dec 06, 2018 11:51 am

justsomeguy2018 wrote:
Thu Dec 06, 2018 11:42 am
Seems like an advantage if an ETF is you can get in and out of it quickly (though guessing this board will call that a disadvantage as it may lead to bad decision). E.g. say you are getting ready to make your contribution and the market is soaring on that day. With ETF you csn get in earlier at lower price, vs NAV of mutual fund at end of day(of course, market could turn at mid day i suppose).
For this reason alone (market timing) you are better off with a mutual fund. There is no need to set yourself up to have to make a buy/wait until tomorrow decision every time you are scheduled to make a contribution. You have better things to do with your time and you will likely be better off financially in the long run.

Cheers

aspiringlawyer
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by aspiringlawyer » Thu Dec 06, 2018 11:55 am

Can someone talk to the advantages of a mutual fund over an ETF? I was thinking if you’re dollar cost averaging and putting in let’s say $500 a month into a Roth IRA, when you use it to purchase a mutual fund, you can buy partial shares but if you use it to purchase an ETF, you can only buy whole shares. So with an ETF you essentially have money sitting there not invested because you didn’t have enough to buy a full share. Does this sound correct? Looking at VTI right now at roughly $135 a share, your $500 would only get you 3 shares, leaving $95 to sit in your money market fund until it accumulates enough to buy the additional share.

neilpilot
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by neilpilot » Thu Dec 06, 2018 12:02 pm

If you later decide to transfer assets in kind to an account at a different broker, ETFs might be easier to transfer. For example, if you decide to transfer your assets from Vanguard to TD Ameritrade or Merrill Edge for improved customer service or a new account bonus.

livesoft
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by livesoft » Thu Dec 06, 2018 12:04 pm

The pros and cons are well described in the wiki:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

I use both, so that I get the advantages of both.
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ruralavalon
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by ruralavalon » Thu Dec 06, 2018 12:43 pm

justsomeguy2018 wrote:
Thu Dec 06, 2018 11:42 am
Not factoring in ERs, are there any advantages or disadvantages to having mutual funds vs ETFs in retirement accounts? E.g. in the HSA, Roth IRA, trad IRA. E.g. VTI vs the Vanguard total stock market mutual fund. Again, looking for differences other than the ERs. Seems like an advantage if an ETF is you can get in and out of it quickly (though guessing this board will call that a disadvantage as it may lead to bad decision). E.g. say you are getting ready to make your contribution and the market is soaring on that day. With ETF you csn get in earlier at lower price, vs NAV of mutual fund at end of day(of course, market could turn at mid day i suppose).
With traditional mutual funds you can buy fractional shares, it's easy to set up automatic investment of your retirement account contributions every pay period, and easy to set up automatic reinvestment of dividends and gains.

I think that the ability to set investments on autopilot is a big advantage.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

justsomeguy2018
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by justsomeguy2018 » Thu Dec 06, 2018 4:42 pm

aspiringlawyer wrote:
Thu Dec 06, 2018 11:55 am
Can someone talk to the advantages of a mutual fund over an ETF? I was thinking if you’re dollar cost averaging and putting in let’s say $500 a month into a Roth IRA, when you use it to purchase a mutual fund, you can buy partial shares but if you use it to purchase an ETF, you can only buy whole shares. So with an ETF you essentially have money sitting there not invested because you didn’t have enough to buy a full share. Does this sound correct? Looking at VTI right now at roughly $135 a share, your $500 would only get you 3 shares, leaving $95 to sit in your money market fund until it accumulates enough to buy the additional share.
This may be the biggest advantage.

But today was a prime example of the frustration of mutual funds. I saw market was down over 2%, so I put in a (very) small order to buy a little bit since I just got an HSA payroll deposit. By the time the day ended it had vanished to 0.25% lower. If I had bought the ETF I could've capitalized on the 2% drop. I guess the inverse of that is, if the market dropped another 2%, I would've missed out on the additional discount.....still frustrating though.

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ruralavalon
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by ruralavalon » Thu Dec 06, 2018 4:49 pm

With traditional mutual funds you avoid the frustrations of intraday trading and fruitless attempts to time the stock market.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Earl Lemongrab
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Earl Lemongrab » Thu Dec 06, 2018 7:07 pm

ruralavalon wrote:
Thu Dec 06, 2018 4:49 pm
With traditional mutual funds you avoid the frustrations of intraday trading and fruitless attempts to time the stock market.
You can't time the market with mutual funds? Huh.
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Earl Lemongrab
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Earl Lemongrab » Thu Dec 06, 2018 7:09 pm

neilpilot wrote:
Thu Dec 06, 2018 12:02 pm
If you later decide to transfer assets in kind to an account at a different broker, ETFs might be easier to transfer. For example, if you decide to transfer your assets from Vanguard to TD Ameritrade or Merrill Edge for improved customer service or a new account bonus.
That's the big reason for me. I get the best ERs and can hold the assets anywhere. So I move them around for bonus money.
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Quercus Palustris
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Quercus Palustris » Thu Dec 06, 2018 10:46 pm

I prefer MFs for several of the reasons listed, but I also don't regularly have internet access during the day due to work constraints. I don't know enough about placing ETF orders after hours without worrying I'll either get bamboozled or the order won't execute in the morning.

But I guess I could overcome that with some education :idea:

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ruralavalon
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by ruralavalon » Fri Dec 07, 2018 11:01 am

Earl Lemongrab wrote:
Thu Dec 06, 2018 7:07 pm
ruralavalon wrote:
Thu Dec 06, 2018 4:49 pm
With traditional mutual funds you avoid the frustrations of intraday trading and fruitless attempts to time the stock market.
You can't time the market with mutual funds? Huh.
As you can see we were all discussing market timing intraday.
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Earl Lemongrab
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Earl Lemongrab » Fri Dec 07, 2018 12:46 pm

ruralavalon wrote:
Fri Dec 07, 2018 11:01 am
Earl Lemongrab wrote:
Thu Dec 06, 2018 7:07 pm
ruralavalon wrote:
Thu Dec 06, 2018 4:49 pm
With traditional mutual funds you avoid the frustrations of intraday trading and fruitless attempts to time the stock market.
You can't time the market with mutual funds? Huh.
As you can see we were all discussing market timing intraday.
But what real difference does that make? People who will panic will panic. Do you really avoid ETFs because you're afraid that you will panic and sell intra-day?
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Hector
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Hector » Fri Dec 07, 2018 12:54 pm

ralph124cf wrote:
Thu Dec 06, 2018 11:49 am
With an ETF you can enter a limit order to buy or sell, and leave it open for a month or two.

Not everybody agrees that this is a good idea.

An ETF will normally incur a commission with each buy or sell transaction, therefore it is less advantageous for DCA during the accumulation years. If you are buying $10,000 or more at a time, the commission will get lost in the noise.

Ralph
Commission in terms of bid-ask spread. Yes.
Commission fees. No. Few brokers offer commission free ETFs, at least from an ETF fund family.

Also in theory, stocks are going to go up eventually. When you buy ETF over MF, you buy earlier (intra day vs end of the day). That is one argument in accumulation years, at least in theory.

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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by GAAP » Fri Dec 07, 2018 1:09 pm

The one advantage to ETFs for those just starting out is that the minimum investment is less. For example, at the moment, an investor would need to make a minimum $3,000 initial purchase of VTWSX (Vanguard Total World Stock Index Fund Investor Shares), while the ETF equivalent is priced at under $70.
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ruralavalon
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by ruralavalon » Fri Dec 07, 2018 4:18 pm

Earl Lemongrab wrote:
Fri Dec 07, 2018 12:46 pm
ruralavalon wrote:
Fri Dec 07, 2018 11:01 am
Earl Lemongrab wrote:
Thu Dec 06, 2018 7:07 pm
ruralavalon wrote:
Thu Dec 06, 2018 4:49 pm
With traditional mutual funds you avoid the frustrations of intraday trading and fruitless attempts to time the stock market.
You can't time the market with mutual funds? Huh.
As you can see we were all discussing market timing intraday.
But what real difference does that make? People who will panic will panic. Do you really avoid ETFs because you're afraid that you will panic and sell intra-day?
No, that's not it at all.

We were discussing attempts at market timing intraday, we were not discussing panic selling.

I don't use ETFs because I don't want to trade intraday at all, am fine with transactions at end of day pricing, prefer the simpler trading mechanics of traditional mutual funds, and and am satisfied with traditional mutual funds.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Earl Lemongrab
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Earl Lemongrab » Fri Dec 07, 2018 6:04 pm

ruralavalon wrote:
Fri Dec 07, 2018 4:18 pm
We were discussing attempts at market timing intraday, we were not discussing panic selling.

I don't use ETFs because I don't want to trade intraday at all, am fine with transactions at end of day pricing, prefer the simpler trading mechanics of traditional mutual funds, and and am satisfied with traditional mutual funds.
That's day-trading. People prone to that will use something. Advising Boglehead investors to avoid them because of that makes no sense.
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Quercus Palustris
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Re: ETFs vs Mutual Funds in Retirement Accounts

Post by Quercus Palustris » Sat Dec 08, 2018 4:58 pm

GAAP wrote:
Fri Dec 07, 2018 1:09 pm
The one advantage to ETFs for those just starting out is that the minimum investment is less. For example, at the moment, an investor would need to make a minimum $3,000 initial purchase of VTWSX (Vanguard Total World Stock Index Fund Investor Shares), while the ETF equivalent is priced at under $70.
I think that's more of a Vanguard issue than a broad "MF vs ETF" thing - for instance, most fund minimums at Schwab are $1, $0 at Fidelity, and the TIAA Bond fund I get through TD Ameritrade (TBIRX) is $0 (unsure about others).

I actually use a combo of both in my HSA, mostly ETF but the remaining cash that was too little to purchase a whole ETF share went into a mutual fund.

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