ETF vs Mutual Fund

[rodeosweetheart]

I get an investment newsletter that used to recommend mutual funds; now they recommend ETF versions of the mutual funds.
So instead of getting the Vanguard mutual fund, I just bought the equivalent index ETF, figuring commissions lower, trading easier.

This is in an IRA, which minimizes the tax problems.

What am I missing here--are there advantages of a Vanguard mutual fund vs. a Vanguard ETF?

[Yossarian]

I use ETFs when I want to manage gain or loss on dispositions. In my retirement account tax basis doesn't matter so I use mutual funds because they automatically reinvest. For the Vanguard funds I've used the management costs are the same in funds and ETFs, but that may not be true for investor class shares. Trading is easier (or at least faster) for ETFs. Depending on your account there can be commission savings on funds as they reinvest automatically but some brokers charge for ETF purchases.

[rodeosweetheart]

I use ETFs when I want to manage gain or loss on dispositions. In my retirement account tax basis doesn't matter so I use mutual funds because they automatically reinvest. For the Vanguard funds I've used the management costs are the same in funds and ETFs, but that may not be true for investor class shares. Trading is easier (or at least faster) for ETFs. Depending on your account there can be commission savings on funds as they reinvest automatically but some brokers charge for ETF purchases.


Okay, I think I am following. I need to look more closely into transaction cost. Intially, the ETF seemed lower, but when you say "I use mutual funds because they automatically reinvest"-- do the ETF's not?

And thank you so much for helping me with this question, btw.

[Yossarian]

do the ETF's not?

There is such a proliferation of these things I hate to make a universal statement, but as a general rule ETFs pay cash dividends. What happens next is up to your broker. I think if you have a Vanguard brokerage account they may give you the option to auto reinvest the cash distribution from the ETF, but others don't. So I think you need to check with whoever your account is with.

[rodeosweetheart]

There is such a proliferation of these things I hate to make a universal statement, but as a general rule ETFs pay cash dividends. What happens next is up to your broker. I think if you have a Vanguard brokerage account they may give you the option to auto reinvest the cash distribution from the ETF, but others don't. So I think you need to check with whoever your account is with.

Awesome, I will do that, and thank you so much!!

[rodeosweetheart]

Yossarian, thank you, I just checked and it was a matter of checking a box and voila, dividends reinvested! Thank you!!!