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VTI (ETF) vs. VTSMX

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  • Avatar MPDO 
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    Which is a better fund to invest in for the short term, VTI (ETF) with an expense ratio of 0.04% or VTSMX with an expense ratio of 0.14%?

    I just did a Roth conversion to Vanguard of a small 403(b) from my previous employer (<10,000), and I won’t cross over the $10,000 mark for a few months. When I have more than $10,000 in the account, I will sell whatever I’m holding and buy VTSAX.

    In the meantime, I need to park the money somewhere, and I am wondering which is cheaper. On the surface, it seems like an easy decision to buy the ETF as Vanguard says there are no commission charges, but are there other buying/selling costs to take into consideration?

    #143196 Reply
    Avatar Peds 
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    is this in a rIRA? there are no costs to buying/selling Vanguard funds at Vanguard, and no taxes.

    #143201 Reply
    Avatar MPDO 
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    Yes, it’s in a Roth IRA at Vanguard. What, exactly, is a bid-ask spread, and is that something to consider when buying VTI in this situation?

    #143204 Reply
    Avatar Peds 
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    Yes, it’s in a Roth IRA at Vanguard. What, exactly, is a bid-ask spread, and is that something to consider when buying VTI in this situation?

    Click to expand…

    you should go read the Boglehead wiki on ETFs v. mutual funds.

    primer:

    – when you buy a MF, you get the market price after the days trading has ended. you cant know it before, but you get the same price as everyone else.

    – with an ETF since you buy/sell like a stock, theres a price it is being asked for, and the price it actually gets sold for. with large funds like VTI, it is usually small. i dont use ETFs so cannot comment on how much money has been lost to bid ask spreads.

    but back to your original quesion:

    – it doesnt matter what you pick (VTI vs VTSMX). the 0.1% ER difference is inconsequential for a 1 year holding some value <10K. pick what you want to use. after you learn the difference.

    #143206 Reply
    Avatar MPDO 
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    Got it. That was very helpful! Thank you.

    #143209 Reply
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    Avatar jz 
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    for a taxable account…….……..use ETF, because no cap gains distribution until the decade you decide to sell
    for a tax deferred account……..a mutual fund ER might be less than a ETF spread, but both are trivial

    #143214 Reply
    Avatar jacoavlu 
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    I would use the mutual fund because I wouldn’t want idle cash leftover. Because you can only buy ETF whole shares. And the ER difference as others have said is inconsequential in this case.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #143217 Reply
    Vagabond MD Vagabond MD 
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    Which is a better fund to invest in for the short term, VTI (ETF) with an expense ratio of 0.04% or VTSMX with an expense ratio of 0.14%?

    I just did a Roth conversion to Vanguard of a small 403(b) from my previous employer (<10,000), and I won’t cross over the $10,000 mark for a few months. When I have more than $10,000 in the account, I will sell whatever I’m holding and buy VTSAX.

    In the meantime, I need to park the money somewhere, and I am wondering which is cheaper. On the surface, it seems like an easy decision to buy the ETF as Vanguard says there are no commission charges, but are there other buying/selling costs to take into consideration?

    Click to expand…

    If you purchase the VTSMX, when you cross the $10k threshold, it will be automatically converted to VTSAX (no tax consequences).

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #143219 Reply
    Avatar hightower 
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    There can be quite a bit of variability in the price of an ETF throughout the day as well.  It might be up 0.71% in the morning and back down to -0.57% by afternoon for example.  So, it’s possible to lose money the same day you buy.  If that bothers you, just go with the MF.  Not that it matters that much in the end, but it’s kind of annoying when it happens.

    For what it’s worth, I just switched all my ETFs to mutual funds because I was sick of there being a little bit of cash left over since you can only buy whole shares.  Another thing I like about mutual funds is setting up automatic dividend reinvestment.  It’s a much more hands off way of investing IMO.

    #143224 Reply
    Avatar Dicast 
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    Earnest refinancing bonus

    For what it’s worth, I just switched all my ETFs to mutual funds because I was sick of there being a little bit of cash left over since you can only buy whole shares.  Another thing I like about mutual funds is setting up automatic dividend reinvestment.  It’s a much more hands off way of investing IMO.

    Click to expand…

    I started using M1 finance for my taxable partly for this reason. I can get fractions of shares of anything. No more than $10 dollars sits in my account in cash. Automatic reinvestment. Pretty customizable. ETFs on everything.

    Get outside of your bubble.

    #143234 Reply
    Avatar MPDO 
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    Status: Physician
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    Thank you all. After considering the advice and the situation a little further, I’ve decided to go with VTSMX.

    #143254 Reply
    Avatar Marko-ER 
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    Also if this hasn’t been mentioned already, Vanguard will automatically convert your VTSMX (investor shares) to lower ER admiral shares once you reach 10K threshold, automatically.

    (nevermind has been already mentioned)>

    #143256 Reply
    Avatar MPDO 
    Participant
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    I’m very new to investing outside of employer-sponsored plans. Logistically, do I just attempt to purchase more VTSMX crossing over the $10,000 mark to trigger the automatic conversion to VTSAX?

    In other words, say I have $9,999 in the account invested in VTSMX. When I contribute more to the account, should I go through the normal steps as if I intend to buy more VTSMX (moving money from the sweep account to make the purchase) or is there something else I have to do to trigger the conversion?

    I realize this is a very basic question, but I’m hoping the response will also help other newbies like me out there. Thank you!

    #143258 Reply
    Avatar jz 
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    is there something else I have to do to trigger the conversion?

    Just forget about it.  Some year,  you’ll return to check on it and find that Vanguard converted it for you.

    #143306 Reply
    Avatar Peds 
    Moderator
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    Joined: 01/08/2016

    I’m very new to investing outside of employer-sponsored plans. Logistically, do I just attempt to purchase more VTSMX crossing over the $10,000 mark to trigger the automatic conversion to VTSAX?

    In other words, say I have $9,999 in the account invested in VTSMX. When I contribute more to the account, should I go through the normal steps as if I intend to buy more VTSMX (moving money from the sweep account to make the purchase) or is there something else I have to do to trigger the conversion?

    I realize this is a very basic question, but I’m hoping the response will also help other newbies like me out there. Thank you!

    Click to expand…

    yes you can let vanguard automatically convert it. its not speedy however, there are reports of people waiting for close to a year on BH.

    there literally is just a new button that pops up next to the fund that says “convert to admiral”. you click it. it says you cant undo it. you say yes. thats it.

    you need 10K. i have not seen reports of people being able to do it at 9999.99. so you would need to buy 0.01 more then the button will pop up.

     

    its both exciting, and literally anticlimactic at the same time.

    #143309 Reply

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