Mutual fund vs ETF - low expense ratio vs tax efficiency?

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$questions
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Mutual fund vs ETF - low expense ratio vs tax efficiency?

Post by $questions » Wed Mar 25, 2020 2:28 pm

If FSKAX total market mutual fund has an expense ratio of .015 compared to the Vanguard ETF VTI, which has an expense ratio of .03 how do I know what the savings will be - in terms of taxes on dividends and capital gains - over a 30 year period? I'm confused on how to determine which will be the better investment long term if all else is equal.

TIA!

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FiveK
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Re: Mutual fund vs ETF - low expense ratio vs tax efficiency?

Post by FiveK » Wed Mar 25, 2020 3:55 pm

Perhaps within the margin of Tracking error.

retired@50
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Re: Mutual fund vs ETF - low expense ratio vs tax efficiency?

Post by retired@50 » Wed Mar 25, 2020 6:41 pm

Based on what I can see on the Fidelity website, it appears FSKAX has paid out capital gains in the past, where the Vanguard ETF has not. That additional capital gain tax burden would be a negative if the fund is held in a taxable account.

The tracking error mentioned in an earlier post may be helpful to understand, but since the two funds mentioned track different total market indexes (one Dow Jones Total Market, the other CRSP Total Market) it would be hard to compare them on that basis.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

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$questions
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Re: Mutual fund vs ETF - low expense ratio vs tax efficiency?

Post by $questions » Wed Mar 25, 2020 7:44 pm

Thank you both!

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grabiner
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Re: Mutual fund vs ETF - low expense ratio vs tax efficiency?

Post by grabiner » Wed Mar 25, 2020 10:16 pm

Expenses and taxes are both costs, so it makes sense to minimize the sum of the two when choosing a fund for an asset class. If the Fidelity fund distributes more than 0.1% of its value per year in capital gains, and you pay 15% tax on those capital gains, the extra cost will be more than the .015% expense ratio difference.

However, I wouldn't sell either fund for a capital gain to switch to the other; the tax cost of doing that is likely more than any expense difference.

And all these numbers are likely to be so low that convenience may be more important. I still hold Vanguard Total Stock Market as a mutual fund rather than as an ETF for convenience; I don't care that this might cost me an extra $10 per year if I have $100K in the fund.
Wiki David Grabiner

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$questions
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Re: Mutual fund vs ETF - low expense ratio vs tax efficiency?

Post by $questions » Thu Mar 26, 2020 11:08 am

Thank you!

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