Vanguard Funds vs ETFs
After researching Vanguard funds vs. ETFs I still haven’t found a good resource that lists in detail the benefits and downsides of each.
- A Vanguard mutual fund is provided and managed by Vanguard. You can only buy Vanguard funds on vanguard.com or over the phone.
- A Vanguard Exchange Traded Fund is packaged up like a stock and its shares can be traded on any market with any brokerage account.
This is my attempt to compile a comprehensive list of tradeoffs.
|Can you exchange?1||Yes||No, you must sell shares to cash to exchange.|
|Can buy fractional shares?||Yes||Yes and no2|
|Can reinvest dividends?||Yes||Yes|
|Price updates||Once a day||Continuously|
|Expense ratio||Sometimes lower|
|Control over price||Can buy at exact price.
Can set up limit orders.
|Tax||Slightly more tax efficient3|
|Auto-scheduled investing||Possible||Not possible|
|Default cost basis4||Average||FIFO|
Overall, ETFs give you more precise control over your investment, but lack the ability to exchange and set up automatic investments. If you’re looking for the absolute best ROI or you plan to trade frequently, ETFs look like the way to go. If your approach is more “set it and forget it,” it looks like mutual funds win out in that category. Let me know your thoughts or if I missed anything below!
Disclaimer: obviously I am the farthest thing from any sort of financial advisor—this is just information aggregated for your convenience.
Update December 2020: The Bogleheads website has a thorough resource on this exact distinction - check it out.
- Both of these trigger capital gains tax. [return]
- This is not possible through Vanguard, but it is possible to buy fractional shares of Vanguard ETFs through other brokers that support it. Thanks to Sinan for pointing this out. [return]
- Thanks to @alexmingoia for pointing this out. [return]
- (via) [return]