Vanguard suggesting I move to ETF's

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rarelyright
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Vanguard suggesting I move to ETF's

Post by rarelyright » Tue Nov 05, 2019 5:26 pm

My "Personal" advisor at Vanguard is recommending I move from my mutual funds to ETF's citing more control and lower ER's. They have a side by side comparison on their home screen. I have a little over $1m in mutuals right now. Any red flags besides the fact that I can't go back to mutual funds later?

Thanks for the feedback!

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Re: Vanguard suggesting I move to ETF's

Post by bertilak » Tue Nov 05, 2019 5:35 pm

rarelyright wrote:
Tue Nov 05, 2019 5:26 pm
My "Personal" advisor at Vanguard is recommending I move from my mutual funds to ETF's citing more control and lower ER's. They have a side by side comparison on their home screen. I have a little over $1m in mutuals right now. Any red flags besides the fact that I can't go back to mutual funds later?

Thanks for the feedback!
Bid/ask spreads?
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retiredjg
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Re: Vanguard suggesting I move to ETF's

Post by retiredjg » Tue Nov 05, 2019 5:35 pm

It seems you are using the Personal Advisor Service. If you are using it for "training wheels" and think you may eventually go back to managing your portfolio on your own, I would not switch to ETFs unless you actually like using ETFs.

I like using mutual funds so my answer would be "not interested". ETFs don't offer anything that is important or interesting to me. I already have enough control and the lower ERs are not enough to matter at all (to me).
Last edited by retiredjg on Tue Nov 05, 2019 7:44 pm, edited 1 time in total.

RubyTuesday
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Re: Vanguard suggesting I move to ETF's

Post by RubyTuesday » Tue Nov 05, 2019 5:43 pm

rarelyright wrote:
Tue Nov 05, 2019 5:26 pm
My "Personal" advisor at Vanguard is recommending I move from my mutual funds to ETF's citing more control and lower ER's. They have a side by side comparison on their home screen. I have a little over $1m in mutuals right now. Any red flags besides the fact that I can't go back to mutual funds later?

Thanks for the feedback!
there are probably other considerations, but here are a few...

pros of etf
1. expense ratios will likely be lower for etf share classes even relative to most admiral funds.
2. intraday trading makes tax loss harvesting easier
3. etfs can easily be held at other brokerages
4. no minimum purchase other than single whole share limit
5. know the exact price of share(s) purchased or sold
6. generate capital gains only on sale

cons of etfs
1. sell subject to bid/ask spread
2. can’t (likely) buy fractional shares

pros of mutual
1. buy fractional shares
2. purchase at the nav (net asset value)
3. sell at the nav

cons of mutual
1. don’t know nav price until after purchase or sell
2. could distribute capital gains though many vanguard funds never distribute capital gains due to etf share class loop hole

there are other fund specific differences (e.g. total bond pays dividends differently)

while you can convert most mutual funds to etf in tax free conversion, you can’t convert back without selling etfs and buying the mutual. so you CAN go back, just not without potential taxable event.

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Re: Vanguard suggesting I move to ETF's

Post by schooner » Tue Nov 05, 2019 5:44 pm

I think the conversion rule is a big clue - it's a one way street. If ETFs are so great, why restrict conversion back into mutual fund shares? Why are they pushing them so hard and locking you in?

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Re: Vanguard suggesting I move to ETF's

Post by Artsdoctor » Tue Nov 05, 2019 5:48 pm

I'm surprised that Vanguard is actually recommending ETFs over mutual funds. I would have guessed that they would have been neutral.

I don't a reason to prefer one over the other. They're different and they'll probably provide similar returns. The tax treatment wouldn't really be different. The pros and cons have been discussed extensively in past posts.

You can definitely convert from mutual fund shares to ETF shares, and you'll need to deal with the conversion factor for as long as you hold the ETFs, although Vanguard should keep track of that for you as long as they're covered shares. I've done this with conversions in the past and it's a small nuisance but if I really wanted the ETF form, it's just a fact of life.

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Re: Vanguard suggesting I move to ETF's

Post by Geologist » Tue Nov 05, 2019 5:50 pm

The lower expense ratios are not significant in dollars and cents, so that is not a reason to convert. Other posters have given some pros and cons and the wiki has a complete discussion.

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Re: Vanguard suggesting I move to ETF's

Post by RubyTuesday » Tue Nov 05, 2019 5:52 pm

Artsdoctor wrote:
Tue Nov 05, 2019 5:48 pm
I'm surprised that Vanguard is actually recommending ETFs over mutual funds. I would have guessed that they would have been neutral.
ETFs are less expensive and more tax efficient to operate, and can easily be held at a different brokerage. I’ve come to opinion that Vanguard would prefer other brokerages have the customer service / brokerage responsibility.

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rarelyright
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Re: Vanguard suggesting I move to ETF's

Post by rarelyright » Tue Nov 05, 2019 5:56 pm

RubyTuesday wrote:
Tue Nov 05, 2019 5:52 pm
Artsdoctor wrote:
Tue Nov 05, 2019 5:48 pm
I'm surprised that Vanguard is actually recommending ETFs over mutual funds. I would have guessed that they would have been neutral.
ETFs are less expensive and more tax efficient to operate, and can easily be held at a different brokerage. I’ve come to opinion that Vanguard would prefer other brokerages have the customer service / brokerage responsibility.
The Vanguard guy said something like "yeah, that's the way we are going".

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Re: Vanguard suggesting I move to ETF's

Post by criticalmass » Tue Nov 05, 2019 6:06 pm

schooner wrote:
Tue Nov 05, 2019 5:44 pm
I think the conversion rule is a big clue - it's a one way street. If ETFs are so great, why restrict conversion back into mutual fund shares? Why are they pushing them so hard and locking you in?
You can buy and sell funds and buy and sell ETFs. You're not locked in. But Vanguard's structure and IRS rules allow you to convert funds to the equivalent ETF tax free (no capital gains tax at conversion time and the basis travels with the money). IRS rules do not allow the same in the other direction. You could still sell an ETF and buy the fund, but would incur a taxable event for any capital gains.

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Re: Vanguard suggesting I move to ETF's

Post by retiredjg » Tue Nov 05, 2019 6:13 pm

Artsdoctor wrote:
Tue Nov 05, 2019 5:48 pm
I'm surprised that Vanguard is actually recommending ETFs over mutual funds. I would have guessed that they would have been neutral.
I don't think it is a general recommendation for everybody, but we have heard before that Vanguard would like to move the PAS (personal advisor service) accounts to ETFs. I suspect it is because they are a little bit cheaper to operate and maybe a little more flexible for the brokerage. Maybe something like that.

That's fine for someone who intends to stay at PAS indefinitely/forever.

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Re: Vanguard suggesting I move to ETF's

Post by TimeRunner » Tue Nov 05, 2019 6:16 pm

rarelyright wrote:
Tue Nov 05, 2019 5:56 pm
RubyTuesday wrote:
Tue Nov 05, 2019 5:52 pm
Artsdoctor wrote:
Tue Nov 05, 2019 5:48 pm
I'm surprised that Vanguard is actually recommending ETFs over mutual funds. I would have guessed that they would have been neutral.
ETFs are less expensive and more tax efficient to operate, and can easily be held at a different brokerage. I’ve come to opinion that Vanguard would prefer other brokerages have the customer service / brokerage responsibility.
The Vanguard guy said something like "yeah, that's the way we are going".
Don't invest in the website and customer support. Phase out the retail business. Let E*Trade, Fido, Schwab, xxx, and the big banks deal with retail customers. Provide low cost high-quality broker-independent ETFs to the marketplace. I can see that. 8-)
One cannot enlighten the unconscious.

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1789
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Re: Vanguard suggesting I move to ETF's

Post by 1789 » Tue Nov 05, 2019 6:19 pm

You can say thank you and you want to continue owning mutual funds.
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Re: Vanguard suggesting I move to ETF's

Post by bloom2708 » Tue Nov 05, 2019 6:24 pm

Perfect example of "don't just do something; stand there".

Stand pat.
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Re: Vanguard suggesting I move to ETF's

Post by Steelersfan » Tue Nov 05, 2019 6:58 pm

Artsdoctor wrote:
Tue Nov 05, 2019 5:48 pm
I'm surprised that Vanguard is actually recommending ETFs over mutual funds. I would have guessed that they would have been neutral.
ETF's use the brokerage system, not the mutual fund system. Vanguard wants to retire the mutual fund system and this helps get them there.

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Re: Vanguard suggesting I move to ETF's

Post by bloom2708 » Tue Nov 05, 2019 7:11 pm

Steelersfan wrote:
Tue Nov 05, 2019 6:58 pm
ETF's use the brokerage system, not the mutual fund system. Vanguard wants to retire the mutual fund system and this helps get them there.
People won't give up the split brokerage/mutual fund accounts.

Think of the challenge to retire all mutual funds. :shock:

I don't see that happening anytime soon.
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Re: Vanguard suggesting I move to ETF's

Post by Steelersfan » Tue Nov 05, 2019 7:33 pm

bloom2708 wrote:
Tue Nov 05, 2019 7:11 pm
Steelersfan wrote:
Tue Nov 05, 2019 6:58 pm
ETF's use the brokerage system, not the mutual fund system. Vanguard wants to retire the mutual fund system and this helps get them there.
People won't give up the split brokerage/mutual fund accounts.

Think of the challenge to retire all mutual funds. :shock:

I don't see that happening anytime soon.
I don't either, but every step toward the eventual goal is a step in the right direction. From Vanguard's perspective.

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Re: Vanguard suggesting I move to ETF's

Post by Artsdoctor » Tue Nov 05, 2019 7:40 pm

^ Maybe. I hope they're not talking out both sides of their mouths. Publicly, they seem to be educating people on the pros and cons of both. On their webcasts and podcasts, they're publicly remaining neutral.

https://investor.vanguard.com/etf/etf-vs-mutual-fund

I don't see logistically how mutual funds can truly be phased out, at least at this point, since so many people have automatic contributions through retirements plans, something that can't be done with ETFs.

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Re: Vanguard suggesting I move to ETF's

Post by livesoft » Tue Nov 05, 2019 7:45 pm

Folks have mentioned bid/ask spread which truthfully is just red herring. The bid/ask spread is virtually meaningless for Vanguard ETFs because one rarely pays the spread anyways. Folks who do mention bid/ask spread probably don't even use ETFs very much at all and thus have little experience with how it really works.
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Re: Vanguard suggesting I move to ETF's

Post by schooner » Wed Nov 06, 2019 12:15 am

criticalmass wrote:
Tue Nov 05, 2019 6:06 pm
schooner wrote:
Tue Nov 05, 2019 5:44 pm
I think the conversion rule is a big clue - it's a one way street. If ETFs are so great, why restrict conversion back into mutual fund shares? Why are they pushing them so hard and locking you in?
You can buy and sell funds and buy and sell ETFs. You're not locked in. But Vanguard's structure and IRS rules allow you to convert funds to the equivalent ETF tax free (no capital gains tax at conversion time and the basis travels with the money). IRS rules do not allow the same in the other direction. You could still sell an ETF and buy the fund, but would incur a taxable event for any capital gains.
What IRS rule? Seems like this is a Vanguard decision to me. According to the prospectus, the mutual fund and ETF are both shares of the same underlying fund:

https://personal.vanguard.com/funds/rep ... 2210151760

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Re: Vanguard suggesting I move to ETF's

Post by Watty » Wed Nov 06, 2019 12:29 am

How do RMDs work with ETF's?

With a mutual fund if you had to withdraw $1,234.56 it seems that you could set that up to be done pretty easily, maybe even automatically.

With an ETF would you need to figure out about how many shares to sell, sell them, wait for the settlement date, and then take the RMD from from your sweep account?

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Re: Vanguard suggesting I move to ETF's

Post by AlohaJoe » Wed Nov 06, 2019 12:45 am

RubyTuesday wrote:
Tue Nov 05, 2019 5:43 pm
pros of mutual
2. purchase at the nav (net asset value)
3. sell at the nav
Why is the NAV assumed to be correct and the market price assumed to be wrong?

Anyway, if an ETF investor buys below NAV and then sells above NAV, they probably aren't going to consider these "pros of mutual funds".

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Re: Vanguard suggesting I move to ETF's

Post by RubyTuesday » Wed Nov 06, 2019 7:45 am

AlohaJoe wrote:
Wed Nov 06, 2019 12:45 am
RubyTuesday wrote:
Tue Nov 05, 2019 5:43 pm
pros of mutual
2. purchase at the nav (net asset value)
3. sell at the nav
Why is the NAV assumed to be correct and the market price assumed to be wrong?
NAV is also a market price based on market price of all assets at close. Sure, Intraday etf price is a market price, subject to mostly inconsequential spread. i listed it as pro for mutual fund but concede not all would see it that way.
Anyway, if an ETF investor buys below NAV and then sells above NAV, they probably aren't going to consider these "pros of mutual funds".
Sure, if true, but not sure how or if they would have certainty of having traded below or above NAV.

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Re: Vanguard suggesting I move to ETF's

Post by criticalmass » Wed Nov 06, 2019 8:04 am

schooner wrote:
Wed Nov 06, 2019 12:15 am
criticalmass wrote:
Tue Nov 05, 2019 6:06 pm
schooner wrote:
Tue Nov 05, 2019 5:44 pm
I think the conversion rule is a big clue - it's a one way street. If ETFs are so great, why restrict conversion back into mutual fund shares? Why are they pushing them so hard and locking you in?
You can buy and sell funds and buy and sell ETFs. You're not locked in. But Vanguard's structure and IRS rules allow you to convert funds to the equivalent ETF tax free (no capital gains tax at conversion time and the basis travels with the money). IRS rules do not allow the same in the other direction. You could still sell an ETF and buy the fund, but would incur a taxable event for any capital gains.
What IRS rule? Seems like this is a Vanguard decision to me. According to the prospectus, the mutual fund and ETF are both shares of the same underlying fund:

https://personal.vanguard.com/funds/rep ... 2210151760
The short answer is the etf is structured with the SEC as a share class of the traditional mutual fund. The traditional mutual fund is not a share class of the etf.

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Re: Vanguard suggesting I move to ETF's

Post by ruralavalon » Wed Nov 06, 2019 4:01 pm

rarelyright wrote:
Tue Nov 05, 2019 5:26 pm
My "Personal" advisor at Vanguard is recommending I move from my mutual funds to ETF's citing more control and lower ER's. They have a side by side comparison on their home screen. I have a little over $1m in mutuals right now. Any red flags besides the fact that I can't go back to mutual funds later?

Thanks for the feedback!
Traditional mutual funds versus ETFs is largely a matter of personal preference.

My own personal preference is traditional mutual funds. The trading mechanics are simpler, you can easily set up automatic investment of new contributions, and easily set up automatic reinvestment of dividends.

On $1,000,000 saving 0.01% in expense ratios gives you an extra $100 annually. Not enough to be important to me.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Vanguard suggesting I move to ETF's

Post by MrBobcat » Wed Nov 06, 2019 4:19 pm

ruralavalon wrote:
Wed Nov 06, 2019 4:01 pm
rarelyright wrote:
Tue Nov 05, 2019 5:26 pm
My "Personal" advisor at Vanguard is recommending I move from my mutual funds to ETF's citing more control and lower ER's. They have a side by side comparison on their home screen. I have a little over $1m in mutuals right now. Any red flags besides the fact that I can't go back to mutual funds later?

Thanks for the feedback!
Traditional mutual funds versus ETFs is largely a matter of personal preference.

My own personal preference is traditional mutual funds. The trading mechanics are simpler, you can easily set up automatic investment of new contributions, and easily set up automatic reinvestment of dividends.

On $1,000,000 saving 0.01% in expense ratios gives you an extra $100 annually. Not enough to be important to me.
I suspect this will change shortly with Schwab allowing fractional share purchases. I'd be willing to bet Fidelity will start allowing fractional share purchase as well (at least I hope so).

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Re: Vanguard suggesting I move to ETF's

Post by MrBobcat » Wed Nov 06, 2019 4:20 pm

bloom2708 wrote:
Tue Nov 05, 2019 7:11 pm
Steelersfan wrote:
Tue Nov 05, 2019 6:58 pm
ETF's use the brokerage system, not the mutual fund system. Vanguard wants to retire the mutual fund system and this helps get them there.
People won't give up the split brokerage/mutual fund accounts.

Think of the challenge to retire all mutual funds. :shock:

I don't see that happening anytime soon.
Unless the change is forced. Sounds like they're being nice about it for now.

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Re: Vanguard suggesting I move to ETF's

Post by ruralavalon » Wed Nov 06, 2019 4:39 pm

MrBobcat wrote:
Wed Nov 06, 2019 4:19 pm
ruralavalon wrote:
Wed Nov 06, 2019 4:01 pm
rarelyright wrote:
Tue Nov 05, 2019 5:26 pm
My "Personal" advisor at Vanguard is recommending I move from my mutual funds to ETF's citing more control and lower ER's. They have a side by side comparison on their home screen. I have a little over $1m in mutuals right now. Any red flags besides the fact that I can't go back to mutual funds later?

Thanks for the feedback!
Traditional mutual funds versus ETFs is largely a matter of personal preference.

My own personal preference is traditional mutual funds. The trading mechanics are simpler, you can easily set up automatic investment of new contributions, and easily set up automatic reinvestment of dividends.

On $1,000,000 saving 0.01% in expense ratios gives you an extra $100 annually. Not enough to be important to me.
I suspect this will change shortly with Schwab allowing fractional share purchases. I'd be willing to bet Fidelity will start allowing fractional share purchase as well (at least I hope so).
Trading mechanics are simpler, you can exchange from one Vanguard fund to another in a single seamless transaction with no delay.

With ETFs it will always be two transactions, the sale of one ETF followed by purchase or another ETF.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Vanguard suggesting I move to ETF's

Post by Fclevz » Wed Nov 06, 2019 4:50 pm

rarelyright wrote:
Tue Nov 05, 2019 5:56 pm
The Vanguard guy said something like "yeah, that's the way we are going".
What about their many funds that don't have an ETF share class?
Last edited by Fclevz on Wed Nov 06, 2019 4:52 pm, edited 1 time in total.

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Re: Vanguard suggesting I move to ETF's

Post by Vulcan » Wed Nov 06, 2019 4:51 pm

rarelyright wrote:
Tue Nov 05, 2019 5:26 pm
My "Personal" advisor at Vanguard is recommending I move from my mutual funds to ETF's citing more control and lower ER's. They have a side by side comparison on their home screen. I have a little over $1m in mutuals right now. Any red flags besides the fact that I can't go back to mutual funds later?
This should be a sticky:
viewtopic.php?t=148757#p2223489
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Re: Vanguard suggesting I move to ETF's

Post by alex_686 » Wed Nov 06, 2019 4:55 pm

RubyTuesday wrote:
Tue Nov 05, 2019 5:52 pm
ETFs are less expensive and more tax efficient to operate, and can easily be held at a different brokerage. I’ve come to opinion that Vanguard would prefer other brokerages have the customer service / brokerage responsibility.
To extend a bit, I am pretty confident that it cheaper for Vanguard's brokerage unit to hold ETFs (Vanguard or not) then for Vanguard to hold the mutual fund share class or for them to manage this stuff directly. Having done the custody part of the business, mutual funds are so much harder, complex, and time consuming then anything sitting at DTC.

We can debate the benefits of mutual funds verse ETFs for investors. However, from Vanguard's prospective, ETFs are the clear winner.

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Re: Vanguard suggesting I move to ETF's

Post by richardglm » Wed Nov 06, 2019 10:19 pm

I have my mutual fund setup with SpecID cost basis so I can control gains and losses more easily. If I convert do I keep the specid cost basis?

I would be willing to convert for small ER benefit. Bid/ask spread is only paid when buying or selling which for long term holding is not as significant, plus when converting I assume you only pay the ask side of the spread (when selling)

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Re: Vanguard suggesting I move to ETF's

Post by UpperNwGuy » Thu Nov 07, 2019 1:46 am

Fclevz wrote:
Wed Nov 06, 2019 4:50 pm
rarelyright wrote:
Tue Nov 05, 2019 5:56 pm
The Vanguard guy said something like "yeah, that's the way we are going".
What about their many funds that don't have an ETF share class?
I hold Vanguard’s Intermediate-Term Tax-Exempt Fund. It only has two classes: Investor and Admiral. No ETF. When Vanguard finally gets around to establishing an ETF for this fund and the related Short-Term, Limited-Term, Long-Term, and High Yield Tax Exempt funds (and the similar single state funds), then I’ll know they’re serious about moving us to ETFs. Until then, I’ll stay with mutual funds.

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Re: Vanguard suggesting I move to ETF's

Post by donaldfair71 » Thu Nov 07, 2019 5:21 am

RubyTuesday wrote:
Tue Nov 05, 2019 5:52 pm
Artsdoctor wrote:
Tue Nov 05, 2019 5:48 pm
I'm surprised that Vanguard is actually recommending ETFs over mutual funds. I would have guessed that they would have been neutral.
I’ve come to opinion that Vanguard would prefer other brokerages have the customer service / brokerage responsibility.
Same. I think, in Vanguard’s perfect world, they’d have a much smaller staff to deal with much of the things they deal with. One way to do this is to have people use their products outside Vanguard. This is a ton easier with ETFs.

I’m 38, and I think in my lifetime I’ll see a time where mutual funds are a “thing old people still use”. I’ll be one of those old people (unless they can automate/create partial shares then I’ll be one of the old people calling other old people old)

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Re: Vanguard suggesting I move to ETF's

Post by rarelyright » Thu Nov 07, 2019 11:07 am

Thanks everyone! I really appreciate the input. I'll sit tight until there's a more significant, or at least, a more clear reason to move.

Thanks again.

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Re: Vanguard suggesting I move to ETF's

Post by abuss368 » Thu Nov 07, 2019 11:09 am

schooner wrote:
Tue Nov 05, 2019 5:44 pm
I think the conversion rule is a big clue - it's a one way street. If ETFs are so great, why restrict conversion back into mutual fund shares? Why are they pushing them so hard and locking you in?
Vanguard is trying to move clients off of the old mutual fund account platform based on my telephone call to client services a couple of months ago.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Vanguard suggesting I move to ETF's

Post by abuss368 » Thu Nov 07, 2019 11:11 am

donaldfair71 wrote:
Thu Nov 07, 2019 5:21 am
I’m 38, and I think in my lifetime I’ll see a time where mutual funds are a “thing old people still use”. I’ll be one of those old people (unless they can automate/create partial shares then I’ll be one of the old people calling other old people old)
I would agree. I believe we are all going to end up on the brokerage side with ETFs at Vanguard. There has to be additional cost savings to managing one platform and administering client services.
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Re: Vanguard suggesting I move to ETF's

Post by abuss368 » Thu Nov 07, 2019 11:17 am

I do not like the year to date statements for the ETF accounts compared to the mutual fund accounts.

The mutual fund accounts provide a real year to date statement that reports the entire years worth of transactions. The ETF year to date statement only shows running balances with activity for the current month. It is not a true year to date statement. I simply do not want 12 statements to save each year. At this point I have no interest in a work around or printing supplemental information from the website.

Come on Vanguard!

If they could fix this I probably (and I have to think many others) would not mind the conversion.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Vanguard suggesting I move to ETF's

Post by ruralavalon » Thu Nov 07, 2019 11:47 am

rarelyright wrote:
Thu Nov 07, 2019 11:07 am
Thanks everyone! I really appreciate the input. I'll sit tight until there's a more significant, or at least, a more clear reason to move.

Thanks again.
That has been and still is my view, in other words "why bother" with a change to ETFs?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Vanguard suggesting I move to ETF's

Post by Wiggums » Thu Nov 07, 2019 12:01 pm

rarelyright wrote:
Tue Nov 05, 2019 5:26 pm
My "Personal" advisor at Vanguard is recommending I move from my mutual funds to ETF's citing more control and lower ER's. They have a side by side comparison on their home screen. I have a little over $1m in mutuals right now. Any red flags besides the fact that I can't go back to mutual funds later?

Thanks for the feedback!
Vanguard is having a webcast on November 7 at 7 PM Eastern standard time. The subject is ETFs versus mutual funds: which are right for me

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Wiggums
Posts: 1708
Joined: Thu Jan 31, 2019 8:02 am

Re: Vanguard suggesting I move to ETF's

Post by Wiggums » Thu Nov 07, 2019 12:03 pm

My personal preference is mutual funds for a lot of the reasons already stated. Also, I find it easy to buy and hold mutual funds whereas with ETFs I get the urge to buy and sell a lot.

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