Index ETF’s vs Index Mutual Funds

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Topic Author
portfolio2021
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Index ETF’s vs Index Mutual Funds

Post by portfolio2021 »

Is there a consensus or preference of one type of fund (ETF) over the other (Mutual)? For a retired individual, is there a tax advantage between the two? A definite value I see is the immediate buy / sell capability for ETF’s rather than waiting until the end of the day for a Mutual Fund price. Are there other concerns or advantages / disadvantages between the two?
Thanks
lazynovice
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Re: Index ETF’s vs Index Mutual Funds

Post by lazynovice »

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Boatguy
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Re: Index ETF’s vs Index Mutual Funds

Post by Boatguy »

ETFs are portable, such that if you change brokerages you can take them with you and continue to buy/sell like stocks. I also believe that Vanguard has a proprietary way in which they are able to keep capital gains somewhat suppressed to keep taxable income low (I’m sure someone has a better description). ETFs also tend to have lower ERs.
livesoft
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Re: Index ETF’s vs Index Mutual Funds

Post by livesoft »

I own both.

From what I see on this message forum, there are folks that have anxiety when placing ETF orders because they fear not getting a fair price more than they appreciate getting a good price. I think the anxiety comes from the fact that they get to choose for their order the time of day and whether to use a market order or a limit order. And they immediately see that the price changes away from the price they made their trade at.

Also, folks who have used only mutual funds in the past and that have never used ETFs seem to fear a new experience.

In contrast, with mutual fund shares traded on a given day, everybody gets the same price. Investors really have no choice about the price and this leads to less regret about the price they used. Also, the price doesn't change for a full 24 hours or more after their trade, so they cannot feel any immediate regret about a price change like ETF users can.

Otherwise, the link given previously explains the mechanical differences while not touching at all on the psychological differences.
Last edited by livesoft on Mon May 03, 2021 7:43 pm, edited 1 time in total.
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Topic Author
portfolio2021
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Re: Index ETF’s vs Index Mutual Funds

Post by portfolio2021 »

lazynovice wrote: Mon May 03, 2021 7:33 pm No consensus:
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
Thanks - this is a good link.

Consensus - "the funds under consideration are all low-cost index funds, then an investor is probably fine either way."
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retired@50
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Re: Index ETF’s vs Index Mutual Funds

Post by retired@50 »

See this link for more on the psychological impact of buying ETFs. A humorous post by user "ogd"

viewtopic.php?p=2223489#p2223489

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alex_686
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Re: Index ETF’s vs Index Mutual Funds

Post by alex_686 »

I would pick out whichever one is more intuitive.

In taxable ETFs are the clear winner. I prefer ETFs. ETFs are the future.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
anil686
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Re: Index ETF’s vs Index Mutual Funds

Post by anil686 »

alex_686 wrote: Mon May 03, 2021 7:47 pm I would pick out whichever one is more intuitive.

In taxable ETFs are the clear winner. I prefer ETFs. ETFs are the future.
+1 - agree with above. Especially for a taxable account although VG tax efficiency is the same btw ETF and MF.....

if you want automatic transactions (withdrawals) however - you would have to use MF’s.....
Topic Author
portfolio2021
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Re: Index ETF’s vs Index Mutual Funds

Post by portfolio2021 »

anil686 wrote: Mon May 03, 2021 7:52 pm
alex_686 wrote: Mon May 03, 2021 7:47 pm I would pick out whichever one is more intuitive.

In taxable ETFs are the clear winner. I prefer ETFs. ETFs are the future.
+1 - agree with above. Especially for a taxable account although VG tax efficiency is the same btw ETF and MF.....

if you want automatic transactions (withdrawals) however - you would have to use MF’s.....
That has been a concern for me - automatic transactions (withdrawals). What is the best way to make the EFT's work?
assyadh
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Re: Index ETF’s vs Index Mutual Funds

Post by assyadh »

I prefer ETFs, mainly because they are portable and their cost basis transfers well. Vanguard screwed up my mutual fund to ETF conversion a few years ago, I had to go and recompute the cost basis myself.

It is easier to deal with round lot numbers rather than 3 digit decimal lots.

Also, you don't know which brokerage firm will be the best 30 years from now. holding ETFs negates that risk.
alex_686
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Re: Index ETF’s vs Index Mutual Funds

Post by alex_686 »

portfolio2021 wrote: Mon May 03, 2021 8:28 pm That has been a concern for me - automatic transactions (withdrawals). What is the best way to make the EFT's work?
That would be a very specific brokerage level question. From a brokerage perspective, ETFs are the same as stocks. Most brokerages don't do this but it is becoming more common.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Bear906
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Re: Index ETF’s vs Index Mutual Funds

Post by Bear906 »

I prefer mutual funds in my Roth IRA, which as of now holds exactly one fund, SWPPX. I have a static amount auto-invested every month, and reinvest all dividends. Every penny in my Roth stays invested, and the whole affair is on autopilot, just like my 401(k).

In my taxable account, it's ETFs all the way. More control over taxable events, and since I maintain my desired AA by directing distributions and new money accordingly, there is zero need for for DRIPs.
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
RetiredCSProf
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Re: Index ETF’s vs Index Mutual Funds

Post by RetiredCSProf »

A couple more differences:
-- MFs offer an advantage if you would like dividends and cap gains to be automatically reinvested in the same fund (in a tax-advantaged account)
-- In my Fido rollover account, I can make "after-hours" Roth conversions of MFs at the closing price; ETFs are also converted at the closing price, but I need to place the order for the conversion before the market closes

Having both ETFs and MF's in the same account can get messy when you want to rebalance; in particular, if you want to move $ out of a MF into an ETF. Work-around is to keep enough dry powder in MM to transfer funds on the same day. Similar issue occurs if you have MF's from more than one fund family in the same account.
livesoft
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Re: Index ETF’s vs Index Mutual Funds

Post by livesoft »

RetiredCSProf wrote: Mon May 03, 2021 10:03 pm -- MFs offer an advantage if you would like dividends and cap gains to be automatically reinvested in the same fund (in a tax-advantaged account)
ETFs have the same advantage: If you would like the dividends and cap gains paid by the ETF to be automatically reinvested in the ETF (same fund) then this is routinely done. And it doesn't matter whether it is a taxable or tax-advantaged account for both ETFs and mutual funds. In other words, it is not a difference.
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portfolio2021
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Re: Index ETF’s vs Index Mutual Funds

Post by portfolio2021 »

livesoft wrote: Mon May 03, 2021 10:11 pm
RetiredCSProf wrote: Mon May 03, 2021 10:03 pm -- MFs offer an advantage if you would like dividends and cap gains to be automatically reinvested in the same fund (in a tax-advantaged account)
ETFs have the same advantage: If you would like the dividends and cap gains paid by the ETF to be automatically reinvested in the ETF (same fund) then this is routinely done. And it doesn't matter whether it is a taxable or tax-advantaged account for both ETFs and mutual funds. In other words, it is not a difference.
The dividend reinvestment was a 2nd major concern with the ETF's. This would make the ETF's very attractive for me.
alex_686
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Re: Index ETF’s vs Index Mutual Funds

Post by alex_686 »

portfolio2021 wrote: Mon May 03, 2021 10:20 pm The dividend reinvestment was a 2nd major concern with the ETF's. This would make the ETF's very attractive for me.
This again is broker specific, however it is a very common feature.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
portfolio2021
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Re: Index ETF’s vs Index Mutual Funds

Post by portfolio2021 »

alex_686 wrote: Mon May 03, 2021 10:29 pm
portfolio2021 wrote: Mon May 03, 2021 10:20 pm The dividend reinvestment was a 2nd major concern with the ETF's. This would make the ETF's very attractive for me.
This again is broker specific, however it is a very common feature.
Thanks
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ruralavalon
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Re: Index ETF’s vs Index Mutual Funds

Post by ruralavalon »

portfolio2021 wrote: Mon May 03, 2021 7:28 pm Is there a consensus or preference of one type of fund (ETF) over the other (Mutual)?
There is no consensus, it's largely a matter of personal preference. My personal preference is regular mutual funds not exchange traded funds (ETFs).
portfolio2021 wrote: Mon May 03, 2021 7:28 pmFor a retired individual, is there a tax advantage between the two?

In a taxable brokerage account ETFs generally have a tax advantage over regular mutual funds. The exception is Vanguard, where the ETF is just a share class of a mutual fund, and they have equal tax-efficiency.
portfolio2021 wrote: Mon May 03, 2021 7:28 pmA definite value I see is the immediate buy / sell capability for ETF’s rather than waiting until the end of the day for a Mutual Fund price. Are there other concerns or advantages / disadvantages between the two?
Thanks
I see no advantage in intra-day pricing of ETFs. With regular mutual funds the trading mechanics are simpler, and its easy to set up automatic investment of new contributions and automatic reinvestment of dividends. This depends on the fund company used.

Wiki article ETFs vs Mutual Funds.
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Re: Index ETF’s vs Index Mutual Funds

Post by pkcrafter »

portfolio2021 wrote: Mon May 03, 2021 7:28 pm Is there a consensus or preference of one type of fund (ETF) over the other (Mutual)? For a retired individual, is there a tax advantage between the two? A definite value I see is the immediate buy / sell capability for ETF’s
A definite value? John Bogle didn't think so... From 2012
Vanguard Group founder John Bogle has been a vocal critic of exchange traded funds in recent years. He fears individual investors could be tempted to trade ETFs too much and shoot themselves in the foot
Despite the fact that 99% of ETFs are index products, Bogle has a distaste for them. He feels that the ability to trade ETFs during the day is their biggest flaw, which isn’t surprising given Bogle’s buy-and-hold philosophy.
https://news.yahoo.com/news/why-vanguar ... 53198.html


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