Why I Prefer Index Funds | ETF vs Index Fund
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- čas přidán 1. 06. 2024
- Are you trying to figure out which investment option is better for you, an ETF or an index fund? In this video I break down the differences between these two types of investments and explain why I personally prefer index funds over ETFs.
Timecodes:
0:00 - Intro
0:33 - Index Fund 101
1:54 - Higher Diversification
2:28 - Low Operating Cost
3:32 - No Need to Hire an Investment Manager
4:30 - Net Asset Value
5:10 - ETF 101
6:44 - Why I Prefer Index Fund
7:08 - No Need For Bells & Whistles
7:34 - No Automatic Investment
9:08 - Minimum
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DISCLAIMER: I am not a financial adviser. These videos are for educational and entertainment purposes only. I am merely sharing my personal opinion. Please seek professional help when needed.
This is my fifth year after retirement. I’e been following the 4% rule thing I saw on a youTube channel, but this isn’t really how hard I expected things to be. After I cashed out a lump sum, I still have about $760k left, but at this rate, and with how the market is (we were putting money away in an index fund), I’m starting to get really worried.
Not a lot of people are able to save that much in a lifetime. But now you are retired and depend on your investment, it’s best you redistribute your capital. To simplify the process, you could allocate your resources with the help of a financial advisor.
I’m closing in on retirement, too, and I have benefitted so much from using a financial advisor. I didn’t start early, so I knew the compound interest of index fund investing would not work for me. Funny how I pulled in more profit than some of my peers who had been investing for many years.
I really need help, please. Can I ask who the financial advisor you work with is?
When ‘Carol Vivian Constable’ is trading, there's no nonsense and no excuses. She wins the trade and you win. Take the loss, I promise she'll take one with you.
She appears to be well-educated and well-read. I ran a Google search for her name and came across her website; thank you for sharing.
The whole talk about "reverse" market crash (real estate and stock market) basically argues that we are nowhere near done with inflation and that we might actually experience "hyperinflation" in the near future combined with accelerating poverty levels across the nation or going thru a historical economic depression...those are the extreme conditions that have produced the reverse market crashes in most examples I've seen. I personally don't see anything that extreme coming, but who knows?
Focus on two important objectives. First, stay protected by learning when to sell stocks to cut losses and capture profits. Second, prepare to profit when the market turns around.I recommend you seek the guidance a broker or financial advisor.
Stocks are unstable at the moment, but if you do the right math, you should be just fine. Strategists have been aiding folks in recording gains over 250k just in a matter of months, so I think there are alot of wealth transfer in this downtime if you have someone who knows where to look like i do.
Hello, how did you handle it? I believe I require a pro after reading these comments
SONYA LEE MITCHELL is the manager I use. Just research the name. You'd find necessary details to set up a consultation.
SONYA LEE MITCHELL is the manager I use. Just research the name. You'd find necessary details to set up an appointment.
If an ETF and index fund are exactly the same, such as vti and vtsax, I would recommend the etf for tax efficiency. Look at what happened with the vanguard targeted date mutual funds--they distributed huge capital gains because of all the money moving to admiral. Anyone holding those index funds in taxable got hosed. Etf is tax efficient and doesn't distribute those gains. I'm surprised you didn't mention this very important point
In addition to the tax efficiency, the ETFs allow for early retirees to have greater control over reportable income so they can qualify for heavily subsidized ACA health insurance prior to Medicare.
Anyone who has been hit by capital gains at the end of the year, would recommend an actively managed tax efficient ETF and not a mutual fund. Mutual fund will pass all the capital gains to you at the end of the year. Of course once the distribution is done you are then liable for taxes - meanwhile the NAV of the mutual fund drops by the same amount of the distribution, thus are not tax efficient. ETF's dont have this problem, especially if they sell and use some slick ways to avoid wash sales.
ETFs can ALSO be used to avoid the wash sale rule while maintaining a similar investment holding. This is because ETFs typically are an index for a sector or other group of stocks and are not substantially identical to a single stock.
He is clueless
@@Davek111 Really? Could you explain more?
VTI and VTSAX have the same tax efficiency due to a patent by vanguard. If however you are comparing non-Vanguard ETFs and MF which track the same index, the ETF will have slightly better tax efficiency if held in a taxable account. The vanguard target date funds are an actively managed basket of index funds (i.e., the fund manager decides what ratios of US vs International equities, us vs international bonds, cash positions and the ratio of all those asset classes. They are two fundamentally different things.
The fin-Market;s have underperformed the U.S. economy as fear of inflation hammers the prices of stock;s and bonds. My portfoliio of $750k is down to $592k any recommendation;s to scale up my return;s during this crash will be highly appreciated.
The market is volatile at this time, hence i will suggest you get yourself a financial-advisor that can provide you with entry and exit points on the shares/ETF you focus on.
Yes, I've been in constant touch with a Financial Analyst for approximately 8 months.
How can one find a verifiable financial planner?
I use Svetlana Sarkisian Chowdhury. You probably must have heard of her.
Thanks for sharing.
I use ETF's in my ISA and index funds in my SIPP but I swear by them both great content thank you.
Hi Hunan Train, your profit margin is quite inspiring and stunning for a starter; do you make use of spreadsheet, what is your top holding
Is SIPP only for UK residents?
Two updates/corrections:
1) you can automate ETF purchases with fidelity. They allow fractional shares and you can purchase VTI or VOO weekly, monthly, etc.
2) you can buy fractional shares of ETFs with Vanguard
This needs to go higher. Fidelity also allows you to purchase fractional ETFs.
While you can purchase fractional ETF shares using vanguard, it must be placed as a market order.
I share your views. But an ETF which pays a dividend can be great, especially in a bear market such as this.
@@Thompson7888 Most of the experts here on YT and lg copy him. That is how they make enormous profits from the seemingly unknown market.
@@aguilarkristine7022 Lol. I am one of them... Started last year wish I had known about him earlier.
@@sonyablack2015 In reality its the best period to invest. Hang in there. Just be cautious and have a system
Let me guess, you didn't research the companies properly before investing...Serves you right.
It's the market, if you can't be on it on the bad days, you shouldn't be in it at all,
I'm a life-long investor, and I am heavily invested in VOO. That is an ETF SP500 Index fund. Yes it's an ETF, with a bid/ask, can trade intraday, benchmarks the S&P500, very low cost expense ratio, and is non-actively managed. So I would have to say this ETF is an awesome index fund, with an expense ratio of 0.02! Beat that!
They are both index funds yo.
@@Chris-fd4kh Fidelity's FXAIX is .015%
I have IVV in mine, was deciding between that and VOO.
I have 50 percent of my portfolio in VOO
I'm a new investor, what do you think about buying equal distribution of both VOO and SCHD etf or VGT and SCHD combination? Your input would be greatly appreciated.
I think you mean to contrast ETFs and mutual funds. Both mutual funds and ETFs include index funds and active funds. The main difference between ETFs and mutual funds is how they are traded.
Indeed. The uploader seems to have conflated "mutual fund" and "index fund," either incidentally or purposely. Strange.
Yes. Definitely wrong
Exactly. Hard to trust anyone's opinion if they get something so basic wrong.
Bingo.
yep, scratching my head after watching this video
I love Index Funds & ETF's myself! Index funds for my retirement accounts, ETF's for my regular brokerage accounts. Great video Tae!
The most important thing that should be on everyone's mind currently should be to invest in different sources of income that doesn't depend on the government. Especially with the current economic crisis around the word. This is still a good time to invest in various stocks, Gold, silver and digital currencies.
How can this person, ROCHELLE DUNGCA-SCHREIBER be reached please...
Wow! I just looked up this person out of curiosity and I'm super impressed with her qualifications. Thanks for sharing.
She lost me a fortune😂
You can have both. I buy VT, which is both an ETF and an Index fund. Nothing wrong with ETF's in my opinion. Actively managed funds are what I avoid.
^^^^this is the way.
Super misleading video. Buy ETFs that track indexes across various areas of the market (large cap, small cap, international developed, international emerging, etc.) Don’t throw money away on high expense ratios.
Amazing how someone can speak as much on this while conflating index fund with mutual fund. The choice is ETF vs Mutual Fund, with either one typically holding an index within it for a passive investor.
Indeed. Not sure what happened here. If it was accidental, I don't see how that's possible. If it was on purpose, I don't see why someone would do that. Either case is strange.
@@OptimizedPortfolio Not sure if this was intended as a plug, since you're replying on your channel's account, but I'm glad you did. Best of 2022 is a good video. Nicely done; others should check it out.
@@Bleys0072 Thanks!
You are correct. But I have noticed other CZcams videos doing the same as this presenter, so for some reason this goofy use of terminology has caught on in certain circles. It's not just a problem with this particular presenter.
I started off with VTI and VXUS (ETFs) a couple years ago. I like being able to buy at any time with a few button presses on my phone. The holdings and costs are the exact same as VTSAX and VTIAX. And it's easier for new investors to start with ETFs because there isn't a $3,000 minimum requirement.
Yup that’s why I started with ETFs as well. It’s has the flexibility I need for what I want without annoying minimum costs.
Yeah, what I got from this video was really nothing to convince me to go with mutual funds. Fractional ETF shares of VTI, for example, is possible. It was a very weak argument
I combine index fund + ETF's for the best of both worlds:
I keep around $5k in the index/mutual fund versions of investments (VTSAX/VTIAX, etc), and then when I have $15-$20k in the mutual funds I perform a tax-free conversion to the ETF counterpart for the lower expense ratios. This allows me to buy the funds at NAV and set up recurring investments without having to actually 'buy' ETF's and cross the bid-ask spread. The majority of my investments are in ETF's after I perform periodic conversions.
How do you perform the conversion? Which platform do you use to do so? Any information will be appreciated.
@@josephcavelli5739 I invest with Vanguard. Just call and say you'd like to convert xxx # of mutual fund shares to the ETF counterpart. That's it.
unless you have several millions of dollars in those investments those fractions of a percent .01 vs .02 are essentially 'a few dollars'
.....uh....what?
@@harjimbaugh4234 Not so much in the basis points, of which my international etf is .04 less bips FYI, but more in not dealing with the bid/ask spreads of buying and selling ETFs. Those 2 things add up over time if you understand compounding interest.....
Insightful video. I just want to know best how people split their pay, how much of it goes into savings, spendings or investments. I'm 33, and earn nothing less $150k per year, but nothing to show for it yet
@Elena Castro Right, you can avoid the pitfalls associated with lifestyle inflation by consulting a well grounded advisor, to help plan your short- and long-term goals, it all depends on proper guidance. I've watched my income generate wealth over the past 2 years and 6 months, I now own a house fully paid, and with at least $2.2m sitting in solid assets thus far. All of this is a result of subsequent investments, and following expert advise.
@@AmFaucher255 Nice, who is the FA aiding you if this is not much i'm asking? my retirement plans are going down the drain with my 401k particularly losing everything it gained ever since 2019
@@waltermartinelli8384 Her name is BRIANNA MCKEE HARRIS, can’t divulge much. Most likely, the internet should have her basic info, you can research if you like
@@AmFaucher255 Thanks, I just googled her and I'm really impressed with her credntials; I reached out to her since I need all the assistance I can get.
In your situation you should invest 400$ every week minimum imo. (I calculate 1h = (80$*10)/2 = 400$
Index Funds in retirement accounts, ETFs in taxable brokerage.
Some index mutual funds pay year end capital gain distributions meaning that you could incur a capital gain even if you didn't sell the mutual fund which makes it slightly more advantageous to hold ETF's in taxable accounts. ETF's typically don't have year end capital gain distributions because of the way they are structured.
100% correct! this allows for tax efficiency, and provides early retirees to have greater control over reportable income so they can qualify for heavily subsidized ACA health insurance prior to Medicare.
You still have to pay taxes for dividends for ETFs.
@@JaredJohnsonRocketMan Yep! No structure will shield a taxable account from taxes on dividends. I was just saying that for tax planning ETFs can be more advantageous because they are less susceptible to year end capital gain distributions.
Considering they are almost identical the two advantages of ETF's (tax efficiency and flexibility - for example for Tax Loss Harvesting) makes ETF's objectively better.
@@JaredJohnsonRocketMan Changes nothing on what I said thou. Even less "old school" fund owners (Think Eduardo Repetto from Avantis) flat out come out and say it "We have both MF and ETF's but the ETF version is objectively better". In addition to the two reasons I mentioned, with ETF's you could end up saving in fees/gains.
How would an ETF be better with taxes? I hear this all the time. How exactly? Makes no sense.
Only difference is that ETFs can be traded all day
Glad I found your channel. You explain issues pro//con very well. Appreciate you do not “talk” down to contrasting ideas. Thank You.
I'm not sure the definitions are right in this video. My understanding is:
Index fund: a fund that tracks an index (e.g. s&p 500)
ETF: a share (that can be traded on an exchange) that holds the underlying shares of the fund
Mutual fund: a company that holds the underlying shares of the fund
Actively managed: a fund that is manually managed (high fees)
Passively managed: a fund that is automatically managed (low fees)
So typically an index fund is an ETF that is passively managed. But you could have an index fund that is a mutual fund. And you could have a non index fund that is an ETF.
So index funds and ETFs are not mutually exclusive terms.
I love mutual funds. At the end of the year I pay taxes on stock sales I never made. The other great thing is that I don’t know the price of the sale of my mutual until market close this way it’s a big surprise. I don’t know why billions of dollars have moved from mutual funds to etfs. Seriously, compared to etfs, mutual funds are terrible choice. Sure 100 years ago you didn’t have a choice but now there are plenty of choices at extremely low costs. Since almost all brokers charge zero commissions there is no reason to not choose ETFs 😅 also unless you buy direct through the fund most brokers charge fees to make purchases
Yea this video is misinformed and I’m barely getting into this stuff. It’s hard to find actual good videos comparing the two; all other popular videos and articles basically say the same thing and focus on bullshit stupid pros/cons like the fractional shares and buy in barrier…
Outstanding video! 1 of the reasons I prefer ETF's is simply that I can sell all of my holdings in the event of an emerging black swan event. If I held a mutual fund, I would be forced to watch the entire fund value melt away all day until my sale was executed that night. I understand that selling really isn't part of the whole buy and hold strategy but I am a guy who lived through the internet collapse, the 2007-08 crash and the covid crash and it takes a lot of time to recover. I'd prefer to be able to sell and protect myself if I'm fortunate enough to see it coming before major damage is done. JMHO.
Internet collapse, 2008 crash, and covid crash would have been great times to buy more index funds. I sure wish I had cash on hand to snatch up more on each of those occasions - or even at the market peak the day before each of those dips!
In 2008 biggest the S&P500 dropped in a single day is 10%. So are you saying you liquidate all your index funds when it gets close to 10%? Seems like a crazy investing strategy
They is no way you can do that. If you try you risk selling the bottom. And even if you avoid selling the bottom how do you time buying back in? If you want to reduce volatility the key is diversity amd uncorrelated assets
I’ve watched two of your videos so far and all I’ve got to say is. You’ve gained a follower and you are an amazing financial CZcamsr. Love the videos love the openness of opinions and facts while also respecting others views on their stratigies.
For someone who thinks it’s worth it to deal with headache of buying and selling an illiquid property and maintaining it, I’m surprised that having to click “buy” once every few months for your ETF is reason enough to give up 0.1% expense ratio on a number that will eventually cost you tens of thousands of dollars.
The terms “ETF” and “index fund” are not mutually exclusive. For example, VOO is an ETF that mirrors the S&P 500, while VTI is an ETF that tracks the entire US market. Both of those ETFs are low-cost index funds.
Dude...I simply did not know this nuance between the two. Thanks a million. I am devising a model for parents to invest for their newborns and was all in on ETFs. Now I can do some math with this new knowledge.
I exchanged the Vanguard funds I could into ETF's because the capital gains hits were putting me into paying supplemental Medicare fees. Good video but for older people ETF's might be a better choice.
Mutual funds with low turnover ratios would minimize capital gains complications, but as a young investor I prefer ETFs for the tax efficiencies
ETFs have lower taxes.
Mutual funds have higher taxes.
@@vincent8900 Mutual funds even with low turnovers will still have capital gains, or return of capital when people move money out of the fund. I don't mean just when you sell your shares. Thats how everybody got hit last year when Vanguard changed the pricing of some of the funds and lots of people moved to the cheaper ones. The fund will recognize gains that it must pass on to you. An ETF by design, cannot create gains like that becuase shares are created or destroyed as needed, instead of buying and selling underlying securities.
@@123lowp Not always. Vanguard Mutual funds that have an equivalent ETF, such as VTSAX & VTI, are equally tax efficient.
Yea, this was a bit of a bad take from usually sound Tae Kim.
This was the best in depth explanation of differences between mutual funds and ETFs.
At vanguard you can make smaller periodical investments in an ETF until you get to the 3000 minimum and then move the ETF funds over to an indexed mutual fund.
You've conflated some terms here in a way that may confuse people. Both ETFs and mutual funds can be "index funds." And both ETFs and mutual funds can be actively managed. Thus "ETF vs. Index Fund" doesn't really make sense. In fact, the first mutual funds were actively managed; index mutual funds arrived later. The opposite is true of ETFs - they were initially solely index products and then actively managed ETFs arrived later in 2008. On the whole, ETFs tend to be cheaper (i.e. lower fees), more tax-efficient, more liquid, and more accessible (no minimums). That's why they've been replacing mutual funds in recent years, and many fund providers like Dimensional are converting their mutual funds to ETFs.
Secondly, the broker you choose determines whether you can buy fractional shares, not the ETF. You said "VTI doesn't allow fractional shares." That's simply not true. Most brokers allow fractional shares nowadays. Vanguard as a broker is behind on the times on that one.
The big reason that I think you missed is that the tax efficiency of ETFs over mutual funds. This would be a big reason for why someone should prefer ETFs. The other reason of no automatic investment is specific to vanguard and not for ETFs in general and can also be overcome by a simply monthly reminder. If you are in it for the long haul, missing by a day every now and then won’t be significant. It the tax thing for mutual funds do not have a workaround. So for me ETF for the win.
100% correct! In addition to the tax efficiency, the ETFs allow for early retirees to have greater control over reportable income so they can qualify for heavily subsidized ACA health insurance prior to Medicare.
yeah, I don't get the point of the argument Tae lays out, it was weak sauce and I still don't know why a mutual fund is better than an ETF
@@barry3792 Agreed. I was watching thinking, OK mutual funds it is. The he says ETF is cheaper, has more options, but simply doesn't allow automatic buys? Then the comment section says ETFs are much more tax efficient. So now it sounds like, ETFs it is, lol..
Yeah, I think this was just "content" for the utuber resume @@3rett115
A monthly reminder is fine, but the difference that Tae is referring to involves a fixed amount of contributions being automatically invested into an account. For example, if I want to invest $100 per month into an IRA or Roth IRA, but want to buy a VOO ETF (current price is roughly $432 USD) then I will not be able to buy 1 share of VOO for over 4 months. The money would sit in Vanguard's money market fund as cash until I have saved $432 and then I would have to manually go purchase that 1 share of VOO.
Conversely, if I have an index fund set up like VFIAX then I can contribute any variable amount that I want at any period of time and those contributed funds will go automatically into the index fund. I eliminate clicks (either through a PC or a phone) and I do not have to wait while funds would be sitting and losing money in a money market account until I save enough for 1 share of an ETF.
At the depth of the stock market crash around 2008 I sold everything and went all in with leveraged ETFs. Even without adding in another penny I made 10-15x my original investment over the last 15 years. And I didn't have to figure out which is the next Google or Apple. I bought the whole NASDAQ and leveraged up.
You guys need to understand, the trick is simple - the fed is on your side, and the market rewards risk. Like Warren Buffet said, when others are fearful, be greedy.
This was the best in depth explanation of differences between mutual funds and ETFs.👍👍
You can also automate BUY orders for ETFs depending on your broker
I don't think we can talk about versatility and diversity in a portfolio and yet also say ETFs are not needed. Having as many options, as many ways to keep money coming in throughout the years, is vital.
I like mutual funds over ETFs because I don't have to make the purchase order. I can just send say $100 every week into the account. Also, there are mutual funds with comparable fees to ETFs. As for ETFs being a tax advantage, that's probably only true when comparing ETFs to actively managed mutual funds. Much less so to passively managed mutual funds. It's certainly a good discussion.
I do believe the index funds are designed for high net worth individals. For most ppl, VTI and VOO will be good enough for them.
True
I really appreciate the dedication in each video you post. To be successful in markets, traders should understand the crossover between asset classes & liquidity flow. Desiree Madison focuses on Multi-asset trading, a single strategy to manage risk, profit, and the code or the actual decision-making across multi-asset classes. Her skills set is top notch.
Ok so there are arguments on both sides but I use both. My auto inv is w VG so I use auto investing threre in Index funds. Now when I make my own purchases when I lean to maybe better times to invest based on bogus news or just mkt overreaction, I like ETFs...lower fees and I can buy during day exactly when I want. Also, I think Schwab allows fractional shares. VG and Fid does not allow auto purch into etfs or stocks btw. Lower fees = less drag over time but it is small in this case. Also, my timing or lean to probabilities based on all the books and youtube and history I havebstudied may be a wash over time but I like the freedom and slightly lower costs of ETFs.
I invest in ETFs. I am from Europe and Index funds aren't really a thing here. In the long run I think it makes absolutely no difference
Im confused…robinhood allows fractional buying and automatic reoccurring investing too. That plus the lower cost of the etf vs index. Am i missing something here?
I can do all you mentioned with ETF via ETRADE. Automatic investing, dividend reinvestment, fractional shares purchase etc for VTI-VOO etc.
Yeah this is what I was looking for in chat. I have a Vanguard account because I started investing before all these cool new apps came out with auto investing and fractional shares. I buy my ETFs on the Robinhood platform with all those functions.
You can currently purchase fractional shares at vanguard (their etfs only) by trading in dollar amounts.
Vanguard now allows fractional buys on ETFs … but they still do not allow automatic contributions to be allocated to ETFs: you have to manually trade them (buy). This is a major PIA for long term investors, and a really curious throw-back to the days when Vanguard only sold whole shares of its ETFs. I wish they would fix this!
How onerous is a calendar and a few key strokes?
@@terry_willis very onerous, if you are trying to eliminate clicks and decision fatigue.
Hey Tae, what is your thoughts on systems like Wealthfront and Betterment? Do you think you can do a video talking about these types of systems compared to tradional brokages?
Why no mention of the different tax treatments? I thought that was the biggest advantage of ETF over MF for long-term investors?
Thank you professor G! ❤ Your videos are so helpful and informative. Happy holidays to you
Wrong channel bozo
You have convinced me to cough up the $3K to buy VTSAX. Now on my to-do list for the end of the first quarter 2023 Thank you!
I do an ETF in a taxable account for tax efficiency.
Is there a difference between vtsax and Vti though for taxes? I honestly can’t figure it out what the tax situation may or may not look like between them in a taxable account since their info in lookup tools is nearly identical except on yield, etc.
@@pfd1972 I'm definitely not an expert but my understanding is that the difference is in capital gains distributions. ETFs are less likely to have them. Vanguard may have some tricks to limit CG distributions in mutual funds.
@@jaredsuttle6347 thanks for the reply - I recall on someone’s video regarding this topic it was mentioned specifically about Vanguard funds that they had patented a process for their mutual funds that minimized or eliminated distributions and tax liabilities holding the fund. Which is literally what I’m trying to figure out the deal with 😀 - It makes sense and see universal advise that in general ETF’s are or could be more tax efficient which makes sense to me with another layer involved - but I’m one of those odd individuals who tries to understand the why about many things to include the topic of mutual funds and ETF nuances. Worst case I own $500 of each I bought within the last couple weeks in my taxable account (vtsax & vti) and I’ll see the 1099 form in a few months and know my answer about tax efficiency.
@@pfd1972 ETF only pays dividends and not capital gains. Index funds can do both. So if you are in a taxable account, better to have an ETF most of the time unless the index doesn't pay capital gains. The idea with an ETF is that there are fewer "taxable events".
Good. Less turnover in index ETFs. Less churning, cap gains. There r some ETFs that dont track an index though.
I would argue ETFs for Nonqualified accounts because you won’t receive capital gains distributions every year you hold the stock. While CG distributions are low for index funds, they still exist. I also find it easier to do tax loss harvesting when using ETFs
I like ETFs cause they show you your gains by the second and it shows your dividends each quarter where as my index fund didn’t
Before this video, I thought I was invested in an index fund. I now know its an ETF.
I'm pretty dumb, but now I'm slightly less dumb!🥳
You're not dumb. ETFs can be index funds. VTI, for example, is an index fund that happens to be an ETF. For some reason the uploader has conflated the terms "mutual fund" and "index fund."
Index funds can come in the form of both a mutual fund or an ETF. You keep saying that index funds are mutual funds. They’re not. They come in both varieties. The vanguard total market index fund comes in VTSAX (mutual) or VTI (exchange traded fund).
The difference between a mutual fund and an ETF is one is traded throughout the day and one trades at close or open based on its NAV.
@@silentnot4812 that’s true.
The difference is how they are legally structured..mutual funds could incur tax liabilities that ETFs wouldn’t..buy the ETF.
A mix of both are best in my opinion. The benefit with ETF is that you can sell it at anytime and you will know to the cents how much you are getting for the EtF. VOO monthly !!
An ETF that pays a dividend pays it out to the settlement fund, where the mutual fund can reinvest and buy more shares.
If one day you decide to move to another firm, you can transfer the ETF over just like any security, whereas the mutual fund cannot, you'd have to liquidate it and transfer the assets as cash. This can generate capital gains, can you imagine holding it for many years how much that would come to?
Thank you. An actual good reason that I haven’t heard
I feel like with Fidelity you kinda get the best of both worlds with the ETFs, I have mine set to autobuy VOOG (S&P500 Growth ETF) and it will purchase a factional share of X dollar amount in regular intervals, and automatically re-invest the dividends which has been fantastic over the last 3 years
Yes, I agree that Fidelity is better than Vanguard. Their trading platform is superior, and managining accounts internationally is much easier with Fidelity. Vanguard uses SMS for 2FA which can be problematic when using different SIM cards internationally, whereas Fidelity uses the Symantec authenticator app which easily allows for account access from anywhere in the world.
I prefer ETFs as I like to know the price at which I am buying and selling.
Imagine selling in October 1987 when stocks fell 23% in a day. With ETFs you decide whether you want to sell at that lower price.
Appreciate the simplicity of this video. Call your brokerage to confirm your understanding, do not assume.
You can buy fractional shares of VTI and VOO now. They added that ability a few months ago.
I use the Fidelity Total market fund has a lower expense ratio that any of the ETFs and I can automate my investments.
This is the best video I have seen that explains index funds vs. ETFs. Thank you!
9:36 what about in a Roth? Would it trigger this capital gains tax
While ETFs are the most efficient vehicles bid ask spread could outweigh lower fees . You buy index funds at nav whereas ETF at the ask price
The best argument for index funds is the fractional shares argument. But if you use robinhood or fidelity you can buy fractional shares!
Fidelity member here and two-fund buy and hold investor (VTI + BND). ETFs beat out Index funds for me because I can still buy in fractional shares (thanks Fidelity) and I avoid the $75 commission associated with buying VTSAX and VBTLX.
Hey, I'm also a Fidelity member. Based on my research I want to go with Vanguard's ETF Index Fund options (VTI + BND) like you instead of Fidelity's Index Funds (FSKAX + FXNAX). Does Fidelity have ANY fees for investing in Vanguard ETFs on their platform?
I share your view, but there is an additional point and that is Capital gains in the mutual fund get distributed along holders, even when you have not sold anything out of your position, on ETFs Capital gains are only charged if you sell out of your position. I know it has not happened in a while with these Mutual funds, but they could happen.
This is really where the mutual fund manager shines... having enough cash to meet redemptions during a market route and not generating Capital gains and sticking to the "list" at the same time.
Can you comment on the tax impact of both Kim? Seems a big consideration when they are bought in a taxable account?
ETFs are more tax-efficient than mutual funds.
Hi Tae, is there a total market international index fund by Vanguard?
Not sure about other brokers but I buy fractional VTI with Robinhood. So, it is not impossible to buy fractional VTI.
From my understanding, for most people who are only using tax deferred accounts it basically doesn't matter, and index funds are just easier to automate so better for 90% of people who just need to set it and forget it. When you start contributing to taxable brokerage accounts is where ETFs can give you a bit of a boost.
People, don't listen to this guy. He suggest buying mutual funds over ETF's? Also and Index Fund IS A TYPE OF ETF. You can invest in a safe S&P 500 ETF (SPY) for under 10 basis points of expense ratio. And it's as liquid as Apple stock, less volatile, and you'll never have to deal with a financial manager to do it. Buy and sell whenever you want through your brokerage account. If you suggest Mutual Funds, you either work for one, or you're throwing your money away with fees.
Vanguard index funds have very low fees
Thank you.
I'm a bit confused. So if for instance "S&P 500 UCITS ETF (VUSA)" ETF or Index Fund ?
Vanguard vs fidelity vs Schwab? Which one is best ? Thank you.
I think that ETFs are cheaper to purchase. I can buy ETFs with no fee or commission and it costs $50 or so to make a mutual fund purchase.
Most of the ETF simply tracks an index :). Most brokers offer the automatic buying (free of charge/ otherwise 1EUR trade) and you can buy even 1 euro worth of it.
You've convinced me to buy ETFs 😂
Great video! What do you think about QQQ long ?
extremely well explained and excellent video. thank you!
Does your opinion change on VTI now that Vanguard allows fractional share purchases?
You can buy fractional shares of vanguard ETFs. Just has to be a market order while the the market is open. Otherwise, you can buy full shares and place a limit order while the market is closed.
I like ETF better but has been struggling with automatic investing with Fidelity so I started last year with M1, love it
Index fund is any fund that passively matches a benchmarked index. This is mutual funds vs ETFs. ETFs and mutual funds can both be indexed funds or actively managed.
Tks your advice.
What index fund (not ETF like voo) is out there for S&P 500 index pls ?
VFIAX
I didn't hear any pros for index funds other than trading platform specific limitations. So, why index funds over moving the portfolio to another platform?
is there a difference in return between vanguard S&P 500 ETF & the Vanguard index fund?
I enjoy your content; however, I feel that you over exaggerated the difficulty in buying ETFs at the end of the video. If you have a trading app on your phone it’s super simple to enter a buy order.
Good video. It needed to address tax-free, deferred, and taxable accounts location.
In a tax-free account, it makes no difference, while in a tax deferred or taxable account, it might.
Now Vanguard does allow ETF fractional shares. I have fractional shares in VOO and VTI.
I own a lot of ETFs and a few index funds. For me (and I don't think I heard it here) the primary reason to hold an mutual fund is that when dividends are paid they are automatically reinvested whereas with an ETF when a dividend is paid it sits that as cash until you manually reinvest it. So I have regularly used mutual funds for bond funds because they pay regularly and I want that reinvestment without thinking about it. Finally, ETFs are attractive because there are more offerings on "sectors"...which are subsets of the whole market emphasizing one product or service category. So I own VGT for information technology or SOXX for semi-conductors. But when it comes to market indices mutual funds have advantages.
No ETF's thru some brokers can be set to automatically reinvest dividends into more shares of the same ETF. You are given the choice to do it either way you prefer.
I have all my ETFs in my brokerage account set to automatically reinvest dividends.
You may need to change to another broker. For example, Charles Schwab offers the option to reinvest dividends automatically.
Thank you for the video. It's very helpful for a beginner like me :)
In the example provided Mutual fund cost was 0.04. Please check big etf their cost is 0.02-0.03. What saving u talking about. ETF takes the best and remove the inefficient , mutual takes in all good , bad , ugly and its performance will not match etf.
ETF vs. Funds, I've heard different reasons than what is presented here. All good and it doesn't matter which route you pick. Personally, I choose ETF's and enjoy investing.
Thank you for your counsel.
So informative! Thank you.
What about platform fees (for ISA's)? The cost to hold shares/ETFs is far less than for funds - especially if you have a large-value portfolio.
Simply said Thank you for always do a great job!
ah mutual funds in the philippines lowest fee for passive index fund is 1% to 1.5% while actively managed funds is 2% to 2.5% 😢.
Wealth Simple rolled out its fractional share option on all available stocks like 4 months ago. So it seems like the fractional share being the only reason not to buy ETF as negligible now.
@@whatsap6160 was the hidden message upsell?