To ETF or Not to ETF

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Rick Ferri
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To ETF or Not to ETF

Post by Rick Ferri »

This post is an offshoot of a question asked by CountryBoy in the Core Four conversion.

First, a side note: Vanguard open-end funds and ETFs are share classes of the same portfolio. For example, the Vanguard Total Stock Market Index (VTSMX) and the Vanguard Total Stock Market ETF (VTI) are the same fund, just different share classes of the fund.


Should you buy Vanguard open-end funds or Vanguard ETFs?

It depends on three factors: costs, custody, and convenience.

Costs are a three-fold equation:

1. Expense ratio: Both the open-end and ETF have management fees and administrative expenses. For example, VTSMX = 0.19% (Investor shares), VTSAX = 0.09 (Admiral shares), and VTI = 0.07% (ETF shares).

2. Commissions: There are no commission if you buy Investor or Admiral shares directly through Vanguard. However, you will pay a commission if you buy Investor shares, Admiral share or the ETF through a brokerage. At most brokerage firms the commission to buy an open-end mutual fund is higher than buying the dollar equivalent of ETF shares.

3. Trading Spreads: Only applies to ETF shares that trade on an exchange. The spread is the difference between what you pay and the true NAV of the fund at the time you bought it. This can be a few pennies per share to about 25 cents depending on when you buy and the liquidity of what you are buying.

Custody is twofold (where you hold your account):

1. Direct with Vanguard: You have an account with Vanguard directly and invest in their open-end funds. There are no commissions to do this. However, you are limited to trading open-end shares once per day at the end of the day NAV.

2. Indirect with a brokerage firm: VBS, Fidelity, Schwab, Merrill et all. You will pay a commission to buy open-end funds and ETFs. Commission costs vary considerably between firms and are different for mutual funds than for ETFs. Open-end funds still trade once per day at the end of the day at NAV, but you can buy ETF shares anytime during the day at the market price (which should be close to the NAV).

If convenience is a factor:

1. If you want one account with only Vanguard funds and no other investments, then open a Vanguard account and buy open-end funds.

2. If you want one account with Vanguard funds and other investments, i.e. other mutual funds, stocks, bonds, ETFs, etc., then you should custody at a discount brokerage firm that gives you access to all of those investments.

IMO, here is how this all shakes out, IMO:

1. If you plan to buy only Vanguard funds - go directly to Vanguard. This is the least expensive option for Admiral Share class investors, and, for Investor Share class investors, this also a low cost option if you are buying multiple funds in a diversified portfolio and if you are dollar-cost averaging.

2. If you plan to buy other investments in addition to Vanguard funds and want the convenience of one custodian - choose a low cost custodian and buy Vanguard ETFs rather than Vanguard open-end funds. The commission cost is lower and the expense ratio for ETF are also lower (slightly lower that Admiral shares also). That would provide the convenience and low cost.

3. If you don’t care about having multiple accounts or the inconvenience tracking and trading in different places, and you are investing regularly, then go with Vanguard directly for the Vanguard funds and open a low-cost custodian account for all the other stuff. See #1.

4. If you are buying only a couple of funds one-time, then it is a coin flip. You can go to Vanguard directly or buy ETFs. Cost differences are too close to call. For Investor class shareholder, going through a low-cost broker and buying ETFs is probably the lowest cost option in the short-term, however direct Vanguard investors can convert Investor class shares to Admiral Shares Class when they have reached a certain level of assets.

Those are the considerations when trying to maximize convenience and minimize costs. Sound complicated? Naa. As we used to say in the Marine Corp, it's as clear as mud.

Rick Ferri
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Post by robert birchell »

Watch the expense of owning the ETF vs. the mutual fund.
Looks huge to me.
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Post by JackS »

I have a Scottrade account so that I can buy other ETFs and perhaps a good mutual fund from other companies as well.

One other advantage for ETFs is that with some Vanguard index funds you have to maintain a certain dollar value or pay a penalty if it goes below that level. I would not want to worry about that in a down year. Also for instance:

Vanguard's VGENX requires a 25k minimum to get in with a .25 ER and a 1% redemption fee if held less than one year. The price of oil could go from $100 a barrel to $50 a barrel in a recessionary year. I would rather own VDE with a .22 ER and no restrictions and buy as much as I want.
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Post by plake15 »

With Zecco I can buy(or sell if I choose to) up to 10 ETF's at zero cost-nothing..per month

that makes it worthwhile,if you can avoid any fees at all when buying them they come out cheaper.

I would rather own VDE with a .22 ER and no restrictions and buy as much as I want.I agree with this statement that above poster said..but only if the buying and selling is 0 cost..it does not pay off to do this if you have to pay each time.
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Post by Rick Ferri »


With Zecco I can buy(or sell if I choose to) up to 10 ETF's at zero cost-nothing..per month
Plake15,

No commission trading is not the same as zero cost trading.

Having spent over 10 years in the brokerage industry, I know that nothing is free on Wall Street. Trading spreads are part of the trading cost that you do not see and cannot control. Where the broker executes is also hidden from you. Supposedly your broker routes your order to the exchange where you get best execution, but I am not convinced that happens all the time. There is a lot of principle trading going on where the brokerage firm makes the other side of the trade.

There is no such thing as a free lunch in business and there is no such thing as free trading on Wall Street.

Rick Ferri
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Cb
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Post by Cb »

Rick, is there any reason I wouldn't want to convert all my applicable Vanguard funds (several of them Admiral) to their corresponding ETF's, given that I can convert at no cost (Flagship) and rebalance / withdraw at no cost using my 12 free trades?

Cb
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Post by livesoft »

Mr. Ferri, I see what you write about zecco, but you have left out WellsFargo which is a no commission broker for many folks. I have been a WF client since well-before free trades became available when trades were very low priced.

And WF allows one to buy Vanguard funds without a fee (but I doubt Admiral share class is available through WF). At least two of the posters here even use a Vanguard fund to simulate a cash sweep account at WellsFargo.

While my experience is no where near yours with respect to trade executions, I am happy with executions at Wells Fargo. For example, I bought VEU yesterday at 58.55. I believe I have gotten good prices every time I have traded. I base this on watching my WF trades in real time through my other brokerage account at TDAM.

Full disclosure: I admit that I also own Vanguard funds (including some with Admiral share class) at Vanguard directly. They are an outstanding company to work with as well.
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Post by plake15 »

livesoft wrote:Mr. Ferri, I see what you write about zecco, but you have left out WellsFargo which is a no commission broker for many folks. I have been a WF client since well-before free trades became available when trades were very low priced.

And WF allows one to buy Vanguard funds without a fee (but I doubt Admiral share class is available through WF). At least two of the posters here even use a Vanguard fund to simulate a cash sweep account at WellsFargo.

While my experience is no where near yours with respect to trade executions, I am happy with executions at Wells Fargo. For example, I bought VEU yesterday at 58.55. I believe I have gotten good prices every time I have traded. I base this on watching my WF trades in real time through my other brokerage account at TDAM.

Full disclosure: I admit that I also own Vanguard funds (including some with Admiral share class) at Vanguard directly. They are an outstanding company to work with as well.
I use limit orders only on zecco to buy..I only pay the price I wanna pay for an equity.I never use market orders.
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Post by grumel »

Someone linked an article recently claiming that limit orders are actually worse.

While i am not sure about that - i dont understand how they avvoid paying spreads either.

Example: curent nav of a fund: 10 Dollar, Bid price 9,90 -> you set limit at 9,90, market falls: new bid price 9,90, new nav 9,80 ----> order fulfilled at same spread as before with a market order.
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Post by Rick Ferri »

There is no such thing as free trading.
WF allows one to buy Vanguard funds without a fee....I bought VEU yesterday at 58.55. I believe I have gotten good prices every time I have traded. I base this on watching my WF trades in real time through my other brokerage account at TDAM.
Okay, what you do not know is that there is an "inside spread", or a dealer spread for lack of a better term. If the bid/ask spread is 58.55 / 58.61, the inside spread is something close to 58.57 / 58.59. Because you are a retail client trading a small amount, you see and generally get the wider spread. Since we are an institution trading larger blocks, we see and trade on the inside spread.
I use limit orders only on zecco to buy..I only pay the price I wanna pay for an equity.I never use market orders.
But, how do you know the price you wanna pay is a good price? The current price may not be near the NAV and the intraday indicated value information is stale the moment it is published. You literally do not have enough time to enter a limit order at a known good price before that order is stale.

We use equity futures prices to help determine fair buy and sell levels. The futures move before stock prices, so we wait for indications of market move in the futures market and place market order on that information. Our intent is not to get a better price than the NAV, but to get as close to NAV as possible when trading.

Rick Ferri
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Post by livesoft »

grumel wrote:Someone linked an article recently claiming that limit orders are actually worse.

While i am not sure about that - i dont understand how they avvoid paying spreads either.
That article was about stale limit orders being executed days or weeks after being entered. Presumably folks here are using only good-for-the-day limit orders.

Also no one is claiming that spreads do not exist. Even the venerable fund managers at Vanguard have transaction costs. I would hope that they get a better deal than a retail customer. :)
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Rick

Post by CountryBoy »

Rick, thanks for starting this thread. In it you list such costs as:
1. Expense ratio:
2. Commissions:
3. Trading Spreads:
However I don't believe you raise the issue of Lower Taxes on ETFs that you address on page 64 of your book.

Question#1: Did you do that on purpose?

A comment above has "cb" asking
Rick, is there any reason I wouldn't want to convert all my applicable Vanguard funds (several of them Admiral) to their corresponding ETF's, given that I can convert at no cost (Flagship) and rebalance / withdraw at no cost using my 12 free trades?
Question #2: If a person is a 'hold for the long term" DH and is already all Vanguard with his investments wouldn't buying ETFs instead of mutual funds make sense going forward? Thanks.

CountryBoy
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Post by Speedy »

A couple of thoughts on this matter:

1. If you do tax loss harvesting, the short term redemption fee on some Vanguard funds (such as several of the international funds) can be an issue. No such issue for ETFs.

2. Also, when tax loss harvesting, I find it convenient to use ETFs as there are several non Vang ETFs with reasonable ERs for most asset classes. Not so easy if you are using Vanguard mutual funds.

3. If you are buying small number of shares, especially if you buy shares each month or so because of dollar cost averaging, ETF trading commissions can be an issue.

4. Exp ratios for Vanguard ETF shares are comparable to Admiral shares, but you don't need to meet the Admiral minimums when using ETFs, so if you are buying for the long term, the savings on ER will soon pay for the trading commissions and then the lower ER becomes a bonus.

In general I prefer ETFs, but if I were buying small lots of shares, I would then lean towards the mutual fund shares in a Vang account.

Best wishes and Happy New Year to all.

Bill
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Post by Speedy »

One other thought for those that have Vanguard accounts: Vanguard does not count ETF shares when determining Flagship status. They only count mutual fund shares. Could be an issue for some.

From Vang website:

Flagship Services™
For investors with more than $1 million in Vanguard mutual funds.


Bill
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Post by tfb »

Rick Ferri wrote:There is no such thing as free trading.
Free trading or not, if you are not paying a commission, the question that really matters is whether the price paid is higher than the NAV at the end of the trading day, because the end-of-day NAV is the price you would pay if you buy a mutual fund on the same day. Is there any evidence that on average the "ask" prices during the day are higher than the end-of-day NAV? I don't think so. I'd expect that the price paid versus end-of-day NAV will even out over many trades.
Harry Sit, taking a break from the forums.
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Post by stan1 »

Speedy wrote:One other thought for those that have Vanguard accounts: Vanguard does not count ETF shares when determining Flagship status. They only count mutual fund shares. Could be an issue for some.

From Vang website:

Flagship Services™
For investors with more than $1 million in Vanguard mutual funds.


Bill
Actually, if you click through to read the fine print Vanguard does count Vanguard ETFs held at Vanguard Brokerage Services. They do not count non-Vanguard ETFs held at VBS, and they do not count Vanguard ETFs held at other brokerages.
Membership is based on total household assets held at Vanguard, with a minimum of $100,000 to qualify for Vanguard Voyager Services, $500,000 for Vanguard Voyager Select Services, and $1 million for Vanguard Flagship Services. We determine membership by aggregating assets of all eligible accounts held by the investor and his or her immediate family members who reside at the same address, including investments in Vanguard mutual funds, Vanguard ETFs, annuities through Vanguard, The Vanguard 529 Plan, certain small-business accounts, and employer-sponsored retirement plans for which Vanguard provides recordkeeping services.
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Post by grumel »

tfb wrote:
Rick Ferri wrote:There is no such thing as free trading.
Free trading or not, if you are not paying a commission, the question that really matters is whether the price paid is higher than the NAV at the end of the trading day, because the end-of-day NAV is the price you would pay if you buy a mutual fund on the same day. Is there any evidence that on average the "ask" prices during the day are higher than the end-of-day NAV? I don't think so. I'd expect that the price paid versus end-of-day NAV will even out over many trades.
No it wont even out, it will never even out, there is no such thing as spread free buying. Spreads might be low enough to justify etfs instead of higher er funds, but its never free to buy.
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Post by at »

Hi Rick,

Since you're a broker, is it possible for your brokers to make a market or sell their clients' order flow to other brokers? Is it against the law? Must the orders be routed to the exchange? Can the orders be crossed internally?
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Post by tfb »

grumel wrote:
tfb wrote:Free trading or not, if you are not paying a commission, the question that really matters is whether the price paid is higher than the NAV at the end of the trading day, because the end-of-day NAV is the price you would pay if you buy a mutual fund on the same day. Is there any evidence that on average the "ask" prices during the day are higher than the end-of-day NAV? I don't think so. I'd expect that the price paid versus end-of-day NAV will even out over many trades.
No it wont even out, it will never even out, there is no such thing as spread free buying. Spreads might be low enough to justify etfs instead of higher er funds, but its never free to buy.
Is that just an opinion or do you have any theoretical or empirical proof for that assertion? I didn't say there is spread-free buying or it's free to buy if you are not paying a commission. I'm only comparing purchasing ETFs to purchasing open-end funds. Note I'm comparing the price paid with the end-of-day NAV, not the underlying NAV at the time of the trade. To use Rick's example, the spread may be 58.55/58.61 and you bought at 58.61. If the NAV at the end of the day is 59.25, then you are better off than a person who bought the open-end fund on the same day. Of course if the NAV at the end of the day is 58.05, you are worse off. Is there any reason that you will consistently pay higher prices than the end-of-day NAV? My personal experience has been that you win some and you lose some. The intra-day volatility is much higher than the spread. The time of the trade has a much larger effect on whether you end up better off or worse off compared to buying an open-end fund.
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Post by market timer »

tfb,

You agree that you will likely pay a premium to intraday NAV due to the bid-ask spread (I'll just assume you're buying). You then question the conclusion that you will also pay a premium to end-of-day NAV. The only way you wouldn't pay a premium is if the NAV rises between the time of your trade and the end of the day to offset your initial premium. Do you have an ability to time the market intraday?
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Post by ken250 »

ETFs....

Unless you think you can do a better job of determing value, you should not be involved with ETFs. When you throw in account and transaction costs it's difficult for ETFs to compete with VG Admiral Shares.
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Post by stan1 »

market timer wrote:tfb,

You agree that you will likely pay a premium to intraday NAV due to the bid-ask spread (I'll just assume you're buying). You then question the conclusion that you will also pay a premium to end-of-day NAV. The only way you wouldn't pay a premium is if the NAV rises between the time of your trade and the end of the day to offset your initial premium. Do you have an ability to time the market intraday?
Here's what he said:
Is there any evidence that on average the "ask" prices during the day are higher than the end-of-day NAV? I don't think so. I'd expect that the price paid versus end-of-day NAV will even out over many trades.
I see the logic. When I buy ETFs I set a limit order about 1-2% (depending upon volatility) below previous day close. I am not able to watch Level 2 quotes while the market is open. My orders execute almost all the time. If they don't, I repeat. This way I know I at least get a better price than the previous day's NAV. Not perfect, but to me it makes more sense than placing a market order. Open to hearing if someone has a better way.
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Post by stan1 »

ken250 wrote:ETFs....

Unless you think you can do a better job of determing value, you should not be involved with ETFs. When you throw in account and transaction costs it's difficult for ETFs to compete with VG Admiral Shares.
Most of the people posting to this board do not have access to Admiral shares. Some will get it after 10 years or more. Lots will change in the mutual fund and brokerage industry in 10 years.
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Post by market timer »

stan1,

I think the question comes down to your premium or discount at the time of trade. When your trade is executed, is it at a premium or discount to current NAV? If trade takes place at a premium to NAV, you will only do better than end-of-day fund buyers in the long run if you are able to time the market intraday.
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Post by Cb »

ken250 wrote:ETFs....

Unless you think you can do a better job of determing value, you should not be involved with ETFs. When you throw in account and transaction costs it's difficult for ETFs to compete with VG Admiral Shares.
I just evaulated my Vanguard ER's again and noticed that a number of Admiral ER's have come down very close to or equal to the corresponding ETF's over the past year.

The only two ETF's that would offer much of a savings for me are Small Value (no Admiral class there) VISVX @ 0.23% vs the ETF VBR @ 0.12%

...and Tax-Managed Internatioanal VTMGX @ 0.20% vs the ETF VEA @ 0.15%

Cb
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Post by ken250 »

How much is it costing to maintain a brokerage acct?

How much is it costing to reinvest dividends?

How much is it costing to rebalance/transact?

Are you paying "advisor" fees?

The above are actually minor concerns, from my viewpoint.

My main concern would be related to one's tendency to making changes...I really doubt many DHs stick to their AAs.....a recipe for disaster since DHs are no less susceptible to "buy high sell low" than the overall market.

It's more efficient to invest in good active funds that provide Admiral Shares, and let the pros make the buy-sell decisions. If you don't have faith in your managers then this approach may not be for you.

I'm sceptical that any DH posters will beat the managers.
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Post by market timer »

ken250 wrote:How much is it costing to maintain a brokerage acct?
$0
How much is it costing to reinvest dividends?
$0, they are added to monthly contributions from savings.
How much is it costing to rebalance/transact?
$1/trade plus typically 1-2 cent/share deviations from NAV
Are you paying "advisor" fees?
No

The main issue for me is that my broker doesn't allow me to buy mutual funds, and I need to use the holdings in my brokerage account as collateral for margin purposes. ETFs are also more amenable to tax loss harvesting.
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Re: To ETF or Not to ETF

Post by xerty24 »

Rick Ferri wrote:2. Commissions: There are no commission if you buy Investor or Admiral shares directly through Vanguard.
I would note that funds like Vanguard's REIT index and Emerging Markets funds both have significant purchase fees that should probably be thought of as an additional commission. In addition, these funds and almost all of Vanguard's foreign funds impose significant redemption fees for sales within 1-2 years. This could raise the costs for rebalancing. All these factors favor ETFs over the corresponding mutual fund.
Rick Ferri wrote:3. Trading Spreads: Only applies to ETF shares that trade on an exchange. The spread is the difference between what you pay and the true NAV of the fund at the time you bought it.
I'm not sure why you quote the spread as the difference from NAV rather than just the bid-ask difference at the time of purchase. The bid-ask difference is what you're likely to pay to execute your eventual market sell order (assuming liquidity stays the same in the ETF between now and your sale), and is probably a better measure of your eventual spread costs. In contrast, looking at the spread to NAV only matters when you're buying the fund at a discount or premium to NAV (which is rarely significant for ETFs anyway). Unless you've got some reason to expect that discount/premium to change during your holding period, you don't incur any extra costs. Closed-end funds are the classic example of this, where you can buy at a huge discount to NAV, sell later at a very similar discount to NAV, and incur only the bid-ask spread cost rather than the price-NAV spread cost.
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Post by SpringMan »

JackS wrote:
Vanguard's VGENX requires a 25k minimum to get in with a .25 ER and a 1% redemption fee if held less than one year. The price of oil could go from $100 a barrel to $50 a barrel in a recessionary year. I would rather own VDE with a .22 ER and no restrictions and buy as much as I want.
VGENX is an actively managed fund and VDE is an index fund. They are two different things. They are highly correlated but do have different holdings. The fund share class of VDE is VENAX and is only available in admiral class shares.
Best,
Best Wishes, SpringMan
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Post by Rick Ferri »

at wrote:Hi Rick,

Since you're a broker, is it possible for your brokers to make a market or sell their clients' order flow to other brokers? Is it against the law? Must the orders be routed to the exchange? Can the orders be crossed internally?
I am not a broker. I was one ten years ago before exiting that industry to start a low-fee portfolio management firm.

The answer to your question is yes. That is the way the industry works. There are regulations guiding principal trades and cross trading. Trades must be reported to an exchange, but they do not need to be done on the exchange.

Brokerage firms may not make a lot of money being in the middle of all trades, but when there is an opportunity, they will certainly take advantage of it. Nothing against them. That is their job. That is how they are paid and earn bonuses.

Rick Ferri
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Post by Speedy »

stan1 wrote:
Speedy wrote:One other thought for those that have Vanguard accounts: Vanguard does not count ETF shares when determining Flagship status. They only count mutual fund shares. Could be an issue for some.

From Vang website:

Flagship Services™
For investors with more than $1 million in Vanguard mutual funds.


Bill
Actually, if you click through to read the fine print Vanguard does count Vanguard ETFs held at Vanguard Brokerage Services. They do not count non-Vanguard ETFs held at VBS, and they do not count Vanguard ETFs held at other brokerages.
Membership is based on total household assets held at Vanguard, with a minimum of $100,000 to qualify for Vanguard Voyager Services, $500,000 for Vanguard Voyager Select Services, and $1 million for Vanguard Flagship Services. We determine membership by aggregating assets of all eligible accounts held by the investor and his or her immediate family members who reside at the same address, including investments in Vanguard mutual funds, Vanguard ETFs, annuities through Vanguard, The Vanguard 529 Plan, certain small-business accounts, and employer-sponsored retirement plans for which Vanguard provides recordkeeping services.
Stan1:

Thanks for the correction. This is apparently a recent development (VG ETF shares being counted for Flagship status) as I researched this question about a year ago. At that time I found no such fine print and also called Vanguard to confirm my understanding. I was told at that time that Vanguard ETF shares would not count toward Flagship status. I think it's a smart move on Vanguard's part to count the ETF shares.

Regards,

Bill
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Post by Plainsman »

Membership is based on total household assets held at Vanguard, with a minimum of $100,000 to qualify for Vanguard Voyager Services, $500,000 for Vanguard Voyager Select Services, and $1 million for Vanguard Flagship Services. We determine membership by aggregating assets of all eligible accounts held by the investor and his or her immediate family members who reside at the same address, including investments in Vanguard mutual funds, Vanguard ETFs, annuities through Vanguard, The Vanguard 529 Plan, certain small-business accounts, and employer-sponsored retirement plans for which Vanguard provides recordkeeping services.
That is the key. Vanguard ETFs and mutual funds held through another broker, such as Wells Fargo, Schwab, Zecco, etc. do not count towards Flagship status.
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Post by livesoft »

ken250 wrote:ETFs....

Unless you think you can do a better job of determing value, you should not be involved with ETFs. When you throw in account and transaction costs it's difficult for ETFs to compete with VG Admiral Shares.
You offer this up as fact, but without any supporting evidence whatsoever, so it really is just your opinion.

It costs one nothing to maintain a brokerage account. For example, I have assets at TDAmeritrade. I hold ETFs in that account. I have placed no trades there in 2 years. I have all dividends transfered via ACH transfer to my other brokerage account for free. I have no cash sweep at TDAM there. To my knowledge, I have paid TDAM nothing in 2 years of holding ETFs.

At WellsFargo, I pay no commissions to trade ETFs. I do have to pay the spread. There is no free lunch. But mutual fund managers and in particular, Vanguard managers of Admiral shares also pay transaction costs and the spread. Their spread may be lower than mine, but a difference of 1 cent on a $50 share is just 0.02% (one-time if I hold the shares forever).

Do you think that the bid/ask on ETFs is not within an acceptable range of value for the ETF? Does not the market help determine value? Is there some mysterious off-the-books trading at a substantial discount going on that I cannot see?

Anyways, could you please give supporting evidence for your statement? My viewpoint is the opposite of yours: it is difficult for Admiral shares to compete with ETFs purchased through a no-commission broker.
stan1
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Post by stan1 »

I will acknowledge that ETF investing requires more self discipline. Vanguard mutual accounts protect investors from the evils of margin accounts, day trading, options, active funds, undiversified holdings, penny stocks, and pork bellies -- you just can't do these things with a Vanguard mutual fund account. Anyone who is susceptible to these temptations is probably best off with mutual funds at Vanguard.

So what is Vanguard lacking?
1. Some asset classes (indexed Intl small and value being the main ones)
2. Multiple investment choices in asset classes that are not "substantially identical" for tax loss harvesting swaps (tax loss harvesting small cap value at Vanguard requires a swap with mid cap value, for example)
3. EM/All World/EAFE funds have purchase and/or redemption fees (again, not good for tax loss harvesting)
4. Marginally acceptable commissions are only available at VBS to people with over $500K in assets at Vanguard ($12 for Voyager Select is marginally acceptable; $20 (Voyager) or $25 (no status) is piracy).
5. Web trading support for specific lot identification and HIFO cost basis accounting to a level that permits taxpayers to comply with IRS requirements (Vanguard's work around is a joke).

For young investors, it could be 10 or 20 years before they are eligible for Admiral shares. The 2-5 bps difference between Admiral and ETF share ERs is not a big deal, but the difference between Investor and ETF share class ETFs is 10-20bps. That can matter, and a lot can change in 10 or 20 years.
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SpringMan
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Post by SpringMan »

Ken250 wrote:
It's more efficient to invest in good active funds that provide Admiral Shares, and let the pros make the buy-sell decisions. If you don't have faith in your managers then this approach may not be for you.
Ken250,
My question for you is more efficient than what and how are you determining efficiency? I think by most efficiency measures passive funds beat active funds. Don't want to hijack this thread with an active vs passive debate, just trying to understand you statement.
Regards,
Best Wishes, SpringMan
JackS
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Post by JackS »

plake15 wrote:With Zecco I can buy(or sell if I choose to) up to 10 ETF's at zero cost-nothing..per month

that makes it worthwhile,if you can avoid any fees at all when buying them they come out cheaper.

I would rather own VDE with a .22 ER and no restrictions and buy as much as I want.I agree with this statement that above poster said..but only if the buying and selling is 0 cost..it does not pay off to do this if you have to pay each time.
I have a Scottrade account. It costs me more to buy a mutual fund that isn't on my 'free' list than an ETF. And Vanguard isn't. It's like around $7 for the ETF to $17 for the fund. Also I can place a limit order with the ETF and more than make up for purchase costs. (and no, I don't want to hear the efficient market nonsense)

I knew about Zecco at the time of my recent rollover, but they were new and I didn't trust them yet. And Scottrade has an office right near my house. I keep about 12-15 funds of various AA in my buy & hold account. I don't care about the $100 to buy these in a six figure account.
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DaveTH
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Post by DaveTH »

ken250 wrote:Unless you think you can do a better job of determing value, you should not be involved with ETFs
This statement makes absolutely no sense.
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preserve
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Post by preserve »

Rick Ferri wrote: Brokerage firms may not make a lot of money being in the middle of all trades, but when there is an opportunity, they will certainly take advantage of it. Nothing against them. That is their job. That is how they are paid and earn bonuses.
Rick Ferri
I second that. Firms get additional refunds and kick backs if their clients issue a limit order.

Point being, the average investor will actually lose more money doing limit orders than market orders.
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at
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Post by at »

preserve wrote:
Rick Ferri wrote: Brokerage firms may not make a lot of money being in the middle of all trades, but when there is an opportunity, they will certainly take advantage of it. Nothing against them. That is their job. That is how they are paid and earn bonuses.
Rick Ferri
I second that. Firms get additional refunds and kick backs if their clients issue a limit order.

Point being, the average investor will actually lose more money doing limit orders than market orders.
Isn't it the other way round? Brokerages love market orders since they can quote whatever prices that are "reasonable" to them.
livesoft
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Post by livesoft »

preserve wrote:Point being, the average investor will actually lose more money doing limit orders than market orders.
Thank goodness we all come from Lake Wobegon.
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DaveTH
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Post by DaveTH »

preserve wrote:Point being, the average investor will actually lose more money doing limit orders than market orders.
Where's the evidence that supports that ridiculous statement?
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magellan
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Post by magellan »

Here's another point to consider about trading costs. I usually decide in the morning that I want to make an investment (after I see new funds in my account). Using ETFs I can get an extra day of market exposure that I don't get if I use a fund.

Assuming that share prices rise over time on average, these extra hours of being "in the market" should have a positive value.

Let's say an ETF's expected annual return is 7%. Divide that by 250 market days per year and you get .028% increase per day. Depending on the share price, that could easily offset a penny or two of the spread.

Am I all wet?

Jim
edge
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Post by edge »

magellan wrote:Here's another point to consider about trading costs. I usually decide in the morning that I want to make an investment (after I see new funds in my account). Using ETFs I can get an extra day of market exposure that I don't get if I use a fund.

Assuming that share prices rise over time on average, these extra hours of being "in the market" should have a positive value.

Let's say an ETF's expected annual return is 7%. Divide that by 250 market days per year and you get .028% increase per day. Depending on the share price, that could easily offset a penny or two of the spread.

Am I all wet?

Jim
One day of market exposure does not matter.
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preserve
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Post by preserve »

at wrote: Isn't it the other way round? Brokerages love market orders since they can quote whatever prices that are "reasonable" to them.
No, brokerages have to match the best price quoted in the market, they cannot simply fabricate an "inhouse" quote unless it is better than the market.

I believe the reason why brokerages like market orders is because they can be executed immediately.
JasonsMoney
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Post by JasonsMoney »

stan1 wrote: 5. Web trading support for specific lot identification and HIFO cost basis accounting to a level that permits taxpayers to comply with IRS requirements (Vanguard's work around is a joke).
Any more info on this would be great. I'm considering putting a large account with Vanguard and would love more details on this negative.

Thanks for any and all info.
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preserve
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Post by preserve »

DaveTH wrote:
preserve wrote:Point being, the average investor will actually lose more money doing limit orders than market orders.
Where's the evidence that supports that ridiculous statement?
Its pretty simple Dave.

A trader doesn't bite your petty limit order until he/she has an arbitrage opportunity.

Ie. while your limit order is hanging out, the fed does a surprise announcement.
JasonsMoney
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Post by JasonsMoney »

Speedy wrote:A couple of thoughts on this matter:

1. If you do tax loss harvesting, the short term redemption fee on some Vanguard funds (such as several of the international funds) can be an issue. No such issue for ETFs.

2. Also, when tax loss harvesting, I find it convenient to use ETFs as there are several non Vang ETFs with reasonable ERs for most asset classes. Not so easy if you are using Vanguard mutual funds.
While I see this given as a benefit of ETFs a lot -- doesn't it make the spread issue that much more? The idea on blowing off spread is that it's a one time fee when you hold forever... but if you tax loss harvest just a few times you are paying spread on the sale and on the re-buy.

It seems like just a few of those and you would be better off with Admiral Shares again?
livesoft
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Post by livesoft »

JasonsMoney wrote:It seems like just a few of those and you would be better off with Admiral Shares again?
LOL! Have you examined the spread? How much is it? Even the managers of admiral shares pay the spread. An extra 0.02% on a one million portfolio is only $200. You probably waste more than $200 a year buying drinks when you eat out instead of drinking water. :)

But the spread is often 1 cent. 1 cent on VTI is .01/137 or 0.0073%.
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daryll40
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Post by daryll40 »

Another factor to consider is the ability to borrow. You cannot borrow (use margin) against Vanguard mutual funds directly. I have a good friend who is buying a new house. He needs a bridge loan of about $500,000 for a few months (hopefully!) while he sells his old home. He is 100% Vanguard direct mutual funds. He'll need to go to a bank etc and take a bridge loan. With the ETFs in a brokerage account you could write yourself a loan.

For us DIEHARDS margin is not much of an issue most of the time, but that temporary ability to borrow WHEN NEEDED is a plus for the brokerage ETF route.
norm
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Post by norm »

I was wondering if I should switch from index funds to ETFs. I am retired and will start withdrawing RMD this year which I will use to rebalance my funds. I will be making little or no purchases of the funds I own:

VTSMX - Total Stock Market Indx
NAESX - Small Cap Index
VGTSX - Total Int'l Stock Indx (switch to VEU)
VBISX - Short Term Bond Indx

Any advice would be most appreciated.
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