Indexed mutual fund vs ETF vs Roth Ira for supplemental retirement savings

[ethelbert]

@Rysto

That article was just the typical fear-mongering perpetuated by active managers who are getting killed by Vanguard. Put your money in total market index funds that invest in basically every stock available on the market and the problem is solved without paying 1+% of your money.

Is there such a thing as a “total market index fund”? This seems unworkable. Do you mean a fund that buys every stock listed on (for instance) the Nasdaq market or all markets? Can you name such a fund?

[Rysto]

@ethelbert

Is there such a thing as a “total market index fund”? This seems unworkable. Do you mean a fund that buys every stock listed on (for instance) the Nasdaq market or all markets? Can you name such a fund?

VTI, the Vanguard Total Stock Market index fund. It tracks an index that invests in basically every US-listed stock.

VXUS, the Vanguard Total International Stock index fund. It tracks an index that invests in nearly every stock in non-US developed and non-developed markets.

[Ispolkom]

@ethelbert

Is there such a thing as a “total market index fund”? This seems unworkable. Do you mean a fund that buys every stock listed on (for instance) the Nasdaq market or all markets? Can you name such a fund?

Well, there’s the Vanguard Total Stock Market Index Fund. It attempts to replicate the behavior of the total market, even if it doesn’t own every stock – only 4,000 according to the NYTimes article mentioned above.

[Jas09]

@Rysto

Meanwhile, with the ETF he has to trade within NYSE trading hours on business days (9:30EST through 4PM), learn what times of day to avoid trading (don’t trade in the first or last 30 minutes of the trading day, don’t trade international ETFs if the market that they track is closed, etc) and learn to use limit orders.

Not to mention getting hit by the bid/ask spread.

There is also the psychological benefit of not being able to day-trade with a mutual fund, if you are prone to that sort of thing.

[FasterThanMeerkats]

@NAF1138

… I can’t really figure what the difference between an ETF and an indexed fund at Vanguard would be for me on a practical level. If they are both indexed to the S&P what’s the real difference (to me, I am pretty sure I understand how they function differently)…

They’re not that different for what you’re talking about. Pick a decent low-fee one (mutual or etf) and don’t sweat it.

Bid/ask spread, timing of day for trades, etc are all irrelevant concerns for the long term investment you’re talking about.

[lazybratsche]

Spam reported.

[dalej42]

@ranger_sbs

I am not very much aware of Roth IRA but I have done a lot of research on mutual fund vs etf and found that ETFs is a better option than Mutual Fund.

Here are the reasons:

[ol]
[li]The very first reason to choose etf over a mutual fund is the expense ratio. Mutual Fund has a very high expense ratio compared to etfs.[/li][li]The second reason is transparency. ETFs are traded just like a stock, therefore, the price (NAV) is always updated unlike mutual where the NAV at the end of trading day.[/li][li]The third reason is Tax Efficiency. ETFs are more tax efficient than mutual funds.[/li][li]The fourth reason is Exit Load, Mutual funds charge exit load when exit before a year whereas efts do not charge exit load.[/li][/ol]

I hope it will help you.

If this is being done in a retirement account, then some of what you’ve mentioned doesn’t matter. Yes, mutual funds can distribute capital gains but if it is done inside a retirement account, this doesn’t matter and doesn’t create a taxable event.

Some brokerage companies offer a family of commission free ETFs, this can be helpful, since a disadvantage of ETFs is that you might have to pay commission to buy and sell ETFs, whereas many mutual funds allow you to buy and sell with no charge, although some may have short term redemption fees should you need to sell quickly

Front and back loaded mutual funds are increasingly rare these days and most of the time should be avoided.

During the trading day, the bid/ask/last trade of an ETF will be updated just like a stock, you can also see the indicative value to see how well the ETF is tracking the underlying. This isn’t usually much of an issue like it was with some closed end funds. However, for the average investor seeing the IV or the end of day NAV for a mutual fund isn’t important. You’d likely need a subscription to a Bloomberg, Thompson Reuters, or other such system to even get the IV quote and it is irrelevant to 99% of traders, especially in a retirement account subject to reg T margin.