To etf or not to etf....

[Guest422]

I have not moved to etf's yet have you? why or why not?

I am currently holding total stock, total bond, total international, short term bond, admiral shares is there any reason not to hold these funds as etfs and get the lower expense ratio?

I know there are many threads and I think I have read most but I want to hear your rationale as to why you chose...

Thanks!

[texas_archer]

Isn't the ER on the etfs the same as the ER on the admiral shares?

[Avo]

ETFs have issues: bid/ask spread and premium/discount to NAV lead to significantly greater complexity in buying/selling. Perhaps you know how to handle this, but what if you cannot? Does the person who will act in your place know what to do?

[Ted Valentine]

I was getting ready to switch, but they introduced the lower threshold on admiral shares and I was very happy to have no reason to use ETFs. If I have a choice between admiral shares of a fund and ETF, I choose the fund.

[nisiprius]

See the Wiki article, ETFs vs. Mutual Funds, for a summary adapted from an excellent posting by livesoft.

If you are doing Boglehead-style investing, the differences between an ETF and a mutual fund are negligible. You can make the decision based on the fee structure at your brokerage, and your personal preference.

I see no reason at all to "move to ETFs" for their own sake. And no reason to hold all one or the other. The bulk of my holdings are mutual funds held directly at Vanguard, where I see no advantage at all to holding the ETFs. I hold some ETFs at Fidelity, because of fee considerations. I might consider an ETF at Vanguard if the mutual fund had purchase or redemption fees. But it's all utterly, utterly unimportant.

Incidentally, the buzz about ETFs often wildly exaggerates their current importance and popularity. As of 2009,

* There were 7,691 mutual funds with a total of over $11 trillion in assets, owned by a total of 270 million shareholder accounts.

* There were a total of 797 ETFs with a total of $777 billion assets.

In other words, the world of mutual funds is 90% traditional mutual funds, 10% ETFs. Are you surprised? I was.

[mcblum]

At this moment, I own one ETF. It is VOO, the S&P500. I have it in taxable and it is used to hold money in addition to sheltered funds. It is for long term and, the only reason I purchased it as an ETF ,was the much lower entry level.
Marty

[CrankyManager]

I deployed cash in my IRA and a beneficiary distribution (inherited) IRA by using ETFs. My reasons for doing so line up pretty precisely with the "Pros" listed in the above linked wiki entry.

If I had it to do all over again... sure, I'd probably still use ETFs. Especially in the BDA IRA, where there isn't "new money" I have to worry about placing. In my IRA I'm not so sure. The ease of using mutual funds cannot be overstated.

But ultimately if I had it to do all over again I'd put far less worry/research time into the project than I did. So long as you understand the intra-day trading technicalities, the ways to buy/sell the ETFs, and so on, you'll save a little in expenses for your trouble.

[Guest422]

Thanks for all the great info

[archbish99]

The main difference to me is that ETFs (generally) have a per-transaction cost, and mutual funds (generally) don't. In my 401k, I can choose between somewhat-higher ER mutual funds or very low ER ETFs. Because there's a transaction fee on the ETFs, I accumulate money in the mutual funds and periodically exchange it to make a bulk purchase of ETFs (rebalancing in the process). I'll do this at least annually, and more often if AA gets too far off.

If the funds I wanted were available in my 401k directly, I'd have no need to buy ETFs. If I were dealing with an IRA where I got to choose the custodian, I'd go Vanguard and have no need to buy ETFs.

ETFs are great when you either have little money (because of the lower cost of entry) or when you don't get to choose your brokerage.

[Default User BR]

Virtually all my holdings outside of the 401(k) are in ETFs. No transaction fees at Wells Fargo, of course.



Brian

[etm]

I use ETFs in my taxable because it's easy to sell a few shares here and there if you need cash. With Vanguard most of your mutual funds become 'frozen' for sixty days after you make a redemption. I know there are ways around this like mailing Vanguard a redemption request. But that seems silly in 2011.

It's really just a personal choice. The only thing I would add is that if you are staring out investing and you want a slice and dice portfolio in, say, an IRA, it will take you a long time to get all your mutual funds because of Vanguard's 3000 dollar initial purchase limit on most of their funds. With ETFs you can quickly set up a portfolio with as many asset classes as you like using ETFs.

[trico]

ETF's were created for people that trade a lot. They try to time the market and this is a lower cost way of doing it. But in reality they are just like mutual funds and should be held as part of an asset allocation strategy. John Bogle commented on this just the other day. He said just another way Wall Street fools all us investors.

[StoneReader]

I prefer Vanguard mutual funds in general and would only consider ETFs in cash accounts where they can not be loaned out to places that might go belly up such as Lehman Brothers. You don't want to be worrying about such things in an unexpected crisis.

That said, the Vanguard Funds have a big disadvantage if you are investing larger sums. Each fund has a floating daily redemption limit even for their very large funds that may have billions of dollars of assets. In good up markets, this redemption limit will be around $1MM. In bad down markets, it will shrink to less than $100,000. You can sometimes get around these limits by talking to a Vanguard representative who then talks to the manager of the fund in question. If you are keeping your redeemed money at Vanguard, the fund manager will allow larger redemption amounts than you can get online. Nevertheless, your account is not really as liquid as you think it is. You don't want to find this out someday when you are under duress. In the same markets, you could redeem your ETF without such restrictions.

Unfortunately, Vanguard does not post these limits. The only way to find them is to go through a transaction almost to the end when a limit flag will stop you. The Vanguard reps are very reluctant to tell you what these floating limits are.

[ruralavalon]

We stuck with regular mutual fund shares. Decided that: (1) the claimed benefits of ETFs , such as intra-day trading, were unimportant to me; and (2) the difference in expense ratios would have an insignificant impact on our portfolio, even before recent the reduction in threshholds for Admiral shares.