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I'm considering recommending various Vanguard index funds to someone I know. I'm wondering what the pros and cons are to recommending the Admiral Share class of their mutual funds vs. their ETF equivalents. These are going to be long term investments and the person does not plan on using the money for at least a decade.
Etfs are more volatile then the fund ...etfs can be traded and sold short
Etfs can trade at a premium or discount to asset value unlike the nav of a fund
Etfs can become disconnected at rare times totally from their nav ....we saw popular etfs like dvy have the share price collapse in one of our flash crashes...the price plunged 35% in minutes while the nav was down just 5% ...trades went through at those levels before it regained balance .
Some bond etfs like third ave had to stop allowing liquidation when there were no takers .
You can’t move admiral shares to fidelity if you ever want to pull your money out of vanguard like I wanted to ....I had to convert my admiral share s&p fund to voo and then transfer it out .
So etfs have advantages but they have negatives too.
Also keep in mind etfs don’t have capital gain distributions...that can create quite a tax torpedo down the road .
Making portfolio changes at retirement and having decades of pent up gains to deal with can make changes difficult since so much is linked to taxable income in retirement.
By using funds along the way it was pretty painless moving from my. Growth stage to my growth and income models
- If that person intends to or thinks they'd like to setup some automatic scheduled investments into one or more funds, that can only be done through the mutual fund, not the ETF.
- If that person doesn't have enough to qualify for the minimum of the Admiral fund the ETF equivalent will give them the same low ER %.
- If that person is investing into a taxable account the ETF often is more tax efficient. In my Vanguard taxable I switched most of my investments to ETF. And I use Wellington in my Vanguard IRA since it's not really a tax efficient fund.
- Though they are planning to hold for a decade or more, ETFs allow a person to buy/sell like a stock, meaning they can setup a limit order so a buy or sell will execute without having to watch the market. This is a nice way to acquire additional shares at a lower price, if the price reaches that level, again without having to watch the market.
I'm considering recommending various Vanguard index funds to someone I know. I'm wondering what the pros and cons are to recommending the Admiral Share class of their mutual funds vs. their ETF equivalents. These are going to be long term investments and the person does not plan on using the money for at least a decade.
Any input would be appreciated!
I prefer funds when long-term because they aren't traded like stocks.
I am less likely to make a move with the mf vs the etf. That has worked in my favor over the years. I believe that many of the etf’s, however, are cheaper.
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