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Advantages of mutual funds over ETFs… You can buy arbitrary dollar amounts rather than full shares. You can also set up scheduled investments, like buy $1000 of VTSAX every month, I don’t recall that on any of my brokerage accounts.
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Jan 24, 2024 01:12
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Looking at my Vanguard account it seems I can setup auto-investing in ETFs (or any stock for that matter), is that not the same thing?
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Jan 24, 2024 01:19
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Purchases and sales of mutual funds occur after the market closes, for the actual net asset value of the underlying assets. ETFs trade during the trading day, with a (usually extremely small) bid/ask spread. In theory, you could make a buy or sale right at a moment when the bid/ask spread gets wider and lose a penny or two per share in the wash. Additionally, the ETF could deviate a little from the value of the underlying assets intraday, due to unusual trading activity. Think: some institutional sized investor decides to pick up ten million bucks of that ETF and their large purchases temporarily drive the price a bit above NAV. In practice if you are sticking to the really big ETFs, not trading often, etc. this will never matter to you. But they are technical differences.
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Jan 24, 2024 01:26
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Popete posted:Help me understand why mutual funds are ever the better option over ETFs. I think you’re mixing up some terminology? VFIAX is a mutual fund that tracks the S&P 500 making it an index fund. VOO is an ETF that tracks S&P 500, also making it an index fund. Boris Galerkin fucked around with this message at 01:32 on Jan 24, 2024 |
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Jan 24, 2024 01:27
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ETFs have been catching up to mutual funds' auto-investing and dollar-amount features. One advantage would be that a mutual fund's price is set once, at the end of the trading day, while an ETF can fluctuate before, during, and after market hours, possibly psyching out a potential buyer.
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Jan 24, 2024 01:28
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Mutual funds are convenient in accounts like a 401k, Roth IRA, etc, for partial amounts being able to be bought as others have said. For that reason alone for those accounts they’re a good bet. But it’s not like there’s a wrong choice (taxable accounts might be a different story?).
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Jan 24, 2024 01:38
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It also seems to be increasingly common for brokerages to allow the purchase of fractional ETF shares. I know Fidelity can do it, at least.
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Jan 24, 2024 01:40
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Maybe what I'm mixing up is that my partners account is an actively managed fund with an account manager that I believe mostly just threw everything into some safe but low return mutual fund. I was thinking that the mutual fund itself was triggering the huge tax burden because of the activity within the fund but perhaps I was mixing that up with her account manager buying/selling shares. I'd have to look into it again.
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Jan 24, 2024 01:54
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Popete posted:Maybe what I'm mixing up is that my partners account is an actively managed fund with an account manager that I believe mostly just threw everything into some safe but low return mutual fund. I was thinking that the mutual fund itself was triggering the huge tax burden because of the activity within the fund but perhaps I was mixing that up with her account manager buying/selling shares. I'd have to look into it again. "Actively managed" anything is many, many red flags.
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Jan 24, 2024 01:56
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You need to know what the mutual fund is actually doing also. Even if the manager isn't generating taxes themself by buying & selling, the mutual fund could be of some type that does a lot of the same thing internally for its own purposes, and you can't really compare it to a basic index fund regardless of whether that index fund is inside of an ETF or a mutual fund.
withak fucked around with this message at 02:00 on Jan 24, 2024 |
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Jan 24, 2024 01:58
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CubicalSucrose posted:"Actively managed" anything is many, many red flags. Ok looking up the difference between ETFs and mutual funds this is what I found on Schwabs website and what I think is going on. quote:ETF: Looking back at my old post I noted that her entire account was made up LEGAX and from my understanding the hit she took when she did her taxes was due to capital gains caused by sales of securities within that fund itself as outlined in the quote above. I've never had that happen in the years I've been holding various Vanguard ETFs, so it seems like ETFs make a lot more sense to avoid the large tax hits.
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Jan 24, 2024 01:59
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Also here's the Bogleheads page - https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
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Jan 24, 2024 02:01
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Popete posted:Ok looking up the difference between ETFs and mutual funds this is what I found on Schwabs website and what I think is going on. It's true that you can avoid these taxes with ETFs, but you can also largely avoid them* with index mutual funds. The primary issue is that the fund in question is actively managed. *Vanguard did trigger these taxes a couple years ago for people who held their target date retirement funds in a taxable account. This was a rare event, for which they're being sued, and target date retirement funds are already a poor choice for taxable accounts for the same reason as actively managed funds. edit: Also maybe try to convince your partner to get out of this fund, not only for tax reasons but because of the 1% expense ratio. runawayturtles fucked around with this message at 02:19 on Jan 24, 2024 |
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Jan 24, 2024 02:16
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 She's paying extra to underperform the S&P. Leaving aside the ETF vs. mutual fund conversation, she should not be in that actively managed fund.
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Jan 24, 2024 02:21
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In a taxable account IMO there is zero reason to not use index ETFs over MFs. In large funds the bid/ask spread doesn't meaningfully exist and you should buy with a limit order anyway. And if you're obsessive about buying in dollar amounts instead of whole shares many brokers are offering fractional share purchases these days. Plus ETFs are portable and easily transferred in-kind between brokers without any fees or other bs. In a tax-advantaged account do whatever you want it really doesn't matter since taxable events don't matter. But additionally actively-managed funds are also best avoided generally, especially in taxable accounts as the active management will trigger taxable events.
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Jan 24, 2024 02:21
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Oh my, 1% expense fee, 5.75% sales charge, and 45% turnover? Run dont walk away from this dog
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Jan 24, 2024 02:26
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drk posted:Oh my, 1% expense fee, 5.75% sales charge, and 45% turnover?  holy poo poo, holy poo poo that’s so bad it should be illegal
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Jan 24, 2024 02:38
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Yes she's already on board with getting her money out of that fund we just need to do it, this is a good reminder.
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Jan 24, 2024 02:52
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You can usually buy MFs with any amount of money whereas ETFs may or may not be purchaseable with fractional orders through your broker ETFs also may carry transaction fees and headaches associated with transactions.
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Jan 24, 2024 03:54
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Leperflesh posted:Purchases and sales of mutual funds occur after the market closes, for the actual net asset value of the underlying assets. ETFs trade during the trading day, with a (usually extremely small) bid/ask spread. In theory, you could make a buy or sale right at a moment when the bid/ask spread gets wider and lose a penny or two per share in the wash. Additionally, the ETF could deviate a little from the value of the underlying assets intraday, due to unusual trading activity. Think: some institutional sized investor decides to pick up ten million bucks of that ETF and their large purchases temporarily drive the price a bit above NAV. amusingly, the institutional investors will probably be smart enough to use a trading desk to have an Authorized Participant create or redeem ETF shares and get their stuff done current best bid / best offer. it's retail investors doing market orders in some kind of crash or mania that is more likely to drive off-NAV trades, or bond ETFs where NAV is hard to calculate in realtime since individual bonds often aren't traded on exchange, or just a less-liquid ETF having a larger bid/ask spread and maybe higher offers getting hit if you market order, say, 10000 shares of it. definitely use limit orders for any of the less liquid ETFs. it's easy to estimate ETF tradeability / liquidity using these sites: https://etf.com/etfanalytics/etf-screener (see analysis / tradability and trading data / spread %) https://etfdb.com/screener/#page=1&average_volume_start=1000000 jokes posted:You can usually buy MFs with any amount of money whereas ETFs may or may not be purchaseable with fractional orders through your broker ehhh, ETF transaction fees are minimal to nonexistent at most major brokers. it will be similar to stocks. Popete posted:Ok looking up the difference between ETFs and mutual funds this is what I found on Schwabs website and what I think is going on. wow okay, LEGAX? yeah bad fees. you can use this site to find similar funds: https://advisors.vanguard.com/investments/portfolio-construction-tools/compare-products/ VUG is a vanguard growth ETF with minimal fees that has a 0.94 correlation to LEGAX (seen if you do the search and scroll down the list of results)
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Jan 24, 2024 04:37
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I started investing money through a Vanguard account two years ago. I feel as though I got a late start on all of this (39 years old now) and regret not doing more investing sooner, so I've been attempting to put as much money as possible into this account now that I have the ability to do so thanks to some significant pay raises at work. I currently have about 30 thousand dollars in the account. 20 thousand of it is in VIGAX in a Roth IRA. 5 thousand is VMFXX in a non IRA brokerage account, and another 5 thousand is VGT in the same non IRA brokerage account. The logic or illogic behind the distribution aside, this recent discussion about taxes has forced me to acknowledge that I have no actual clue about the tax implications of the non IRA account. I received a tax form from Vanguard indicating some 100 dollars of dividends, which I'm assuming will have a minimal impact on my taxes beyond the inconvenience of figuring out how to add this wrinkle to my filing. Is that correct? What's this talk about surprise large tax bills and how do you know what will or will not cause serious tax repercussions? Am I safe to just put my money into these accounts and hope it grows, or is Uncle Sam going to kick my rear end for being ignorant and daring to dabble in wealth generation as a plebeian?
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Jan 24, 2024 04:57
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You will get a form telling you how much dividends you made just like you get a W-2 telling you how much salary you made. Put that info in when freetaxusa.com (not a scam) asks for it and it will get added in with the rest of your income. If you made a few hundred in dividends then you will have to pay something like a few tens in taxes on it.
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Jan 24, 2024 05:12
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pmchem posted:I mean, sure, easy to objectively determine. Example here at one of many sites that will do this sort of calc for major asset classes: I believe the question is how to evaluate this conjectured non-correlation for some arbitrary hedge fund, which is probably going to be difficult to do because the necessary information probably isn't publicly available, and is only available at all when filtered through said fund's salespeople. And since my post prompted it, I'll reiterate my position, which is that I don't know whether any such hedge fund is, or is likely to be, a good investment, but the people running it probably genuinely do, because the kind of people who run hedge funds usually spend enough time smelling their own farts that they think that hedge funds (specifically, theirs) are cool and good.
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Jan 24, 2024 05:30
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Popete posted:Yes she's already on board with getting her money out of that fund we just need to do it, this is a good reminder. She needs to get the money out of whatever person is investing it in the fund. The fund is extremely bad but whoever is managing that money and putting it in that fund is extra bad. Also when she sells all this and moves it just a heads up that depending on when it was bought she could be looking at a bunch more taxes owed to long term gains.
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Jan 24, 2024 05:32
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spwrozek posted:She needs to get the money out of whatever person is investing it in the fund. The fund is extremely bad but whoever is managing that money and putting it in that fund is extra bad. Yes agreed, I am frustrated at the account manager who helped set the accounts up with her parents. Dumping it all into a high expense fund that is performing worse and costing her money in taxes to do so seems like borderline fiduciary liability.
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Jan 24, 2024 06:11
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Popete posted:Yes agreed, I am frustrated at the account manager who helped set the accounts up with her parents. Dumping it all into a high expense fund that is performing worse and costing her money in taxes to do so seems like borderline fiduciary liability. Yeah is the person actually a fiduciary? A lot of "investment advisors" are both horrible and not fiduciaries and in fact get commissions for placing customers investments into more costly or expensive funds.
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Jan 24, 2024 06:18
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Popete posted:Yes agreed, I am frustrated at the account manager who helped set the accounts up with her parents. Dumping it all into a high expense fund that is performing worse and costing her money in taxes to do so seems like borderline fiduciary liability. it could've been worse. even with its fees, LEGAX did outperform the S&P over almost all relevant timeframes in the past decade: https://stockcharts.com/freecharts/perf.php?SPY,LEGAX&n=2520&O=011000 a consequence of it being overweight megacap tech. but you could've gotten similar results with VUG (or some funds similar to VUG), with lesser fees and basically no tax headaches.
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Jan 24, 2024 06:20
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You're right they probably aren't, I don't know what his role is beyond initially helping to setup the families accounts. ^^^Oh well at least that's some conciliation! Still best to move the funds as the tax hits are probably offsetting that almost entirely.
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Jan 24, 2024 06:22
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litany of gulps posted:The logic or illogic behind the distribution aside, this recent discussion about taxes has forced me to acknowledge that I have no actual clue about the tax implications of the non IRA account. I received a tax form from Vanguard indicating some 100 dollars of dividends, which I'm assuming will have a minimal impact on my taxes beyond the inconvenience of figuring out how to add this wrinkle to my filing. Is that correct? What's this talk about surprise large tax bills and how do you know what will or will not cause serious tax repercussions? Am I safe to just put my money into these accounts and hope it grows, or is Uncle Sam going to kick my rear end for being ignorant and daring to dabble in wealth generation as a plebeian? Surprise large tax bills generally come from either owing an actively managed mutual fund that does some internal shuffling of assets or from owing a single stock that goes through some sort of merger or buyout with a specific deal structure. An example of the first case would be a mutual fund manager moving a bunch of money inside the fund from one stock to another by selling the first stock and buying the second one. If the sale had gains then taxes would be owed. If the gains are large, the stock had been held for less than a year, and the transaction involved a large number of shares then the tax bill could be quite big. The second case is less common but happened to me several years ago. I owned a bunch of shares in a US company. That company decided to merge with a company based out of Ireland. The merger was structured such that all of my shares in the original company were sold and the money was then used to buy an equal number of shares in the new merged company. This was a taxable event and because I had a lot of shares I owed ~$40k in taxes on money I never saw. Not a fun experience. Antillie fucked around with this message at 19:42 on Jan 24, 2024 |
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Jan 24, 2024 19:26
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Antillie posted:The second case is less common but happened to me several years ago. I owned a bunch of shares in a US company. That company decided to merge with a company based out of Ireland. The merger was structured such that all of my shares in the original company were sold and the money was then used to buy an equal number of shares in the new merged company. This was a taxable event and because I had a lot of shares I owed ~$40k in taxes on money I never saw. Not a fun experience. Presumably you got a step up in cost basis though? You might not have had the capital gain in your bank account, but you did receive something of value. If you knew about it ahead of time, presumably you could instruct your broker to execute a sell to cover taxes as soon as possible after the corp action?
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Jan 24, 2024 20:35
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drk posted:Presumably you got a step up in cost basis though? You might not have had the capital gain in your bank account, but you did receive something of value. If you knew about it ahead of time, presumably you could instruct your broker to execute a sell to cover taxes as soon as possible after the corp action? Yes I got a step up in cost basis. So yeah if you do the math I wasn't cheated or anything. But its not exactly a convenient thing to deal with. The shares were at a transfer agent at the time, not a full brokerage, and they didn't make anything easy. I didn't understand what had happened until I did my taxes months later. The whole thing turned me off from owning individual stocks and started me on the path of learning about index funds. So there is that at least. Antillie fucked around with this message at 21:12 on Jan 24, 2024 |
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Jan 24, 2024 21:02
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It's fun learning about investing in stocks and things like options and then you get kinda overwhelmed how you're supposed to actually choose stocks and when to sell them and then finally you learn that 99% of the time you should buy index funds and stop stressing about it.
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Jan 24, 2024 21:19
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Popete posted:It's fun learning about investing in stocks and things like options and then you get kinda overwhelmed how you're supposed to actually choose stocks and when to sell them and then finally you learn that 99% of the time you should buy index funds and stop stressing about it. Slam the buy button on VOO or VTI and you're set
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Jan 24, 2024 21:35
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I tried to get into investing 6 or 7 years ago and was paralyzed by not knowing what stocks to pick before giving up on it. If I had just known what money market funds and target date funds were back then, my finances would be going quite a bit better.
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Jan 24, 2024 22:02
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Shout out to the personal finance wizards who seek out any kind of basic advice like what you could have used and shout it down with "it's not that simple!!" before caving and admitting they can't beat the S&P 500 and yeah, a high yield savings account or money market fund is perfectly fine for parking idle cash.
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Jan 24, 2024 22:33
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I inherited a chunk of change a few years ago and it has been sitting in my savings account earning itty bitty returns since then, and I figured it's long past time I do something with it. I'm leaving the US in a few months and won't need to access any of my savings or pay any bills out of my US accounts, so I want to invest the vast majority of it (about $150,000). I do want to use that lump sum eventually but I shouldn't need to touch it for around 4 or 5 years, beyond re-investing the interest. This is all totally new to me, and the more I look stuff up the less I understand it (the last couple pages of this thread have been the most helpful of anything I looked at), but it looks like I've got several options: 1. Treasury bonds. It appears there's a $10k limit per year, so maxing out on this to start seems like not a terrible idea? Tell me why I'm an idiot. 2. CDs / Share certificates with my local banks. I have an account at Fifth Third and they are offering 4% APY for a 12 month CD. My local credit union has a share certificate "11 Month Special!" with 5.01% APY (so I have to divide that by 11/12s I guess?). 3. CDs with other local banks /online banks. Barclay's is a bank I have heard of so I assume they're not a scam, and they have a 1-year plan with 5.30% APY. 4. Index fund question mark? For now I'm thinking buy some treasury bonds, since you can cash them in penalty-free after 5 years and I can definitely keep at least that much tied up in the market until then. Then, the credit union, since most of my money is there already anyway. Then once I start earning interest, that goes into... index fund? Please tell me if and how I'm about to lose all my money.
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Jan 25, 2024 00:18
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Popete posted:It's fun learning about investing in stocks and things like options and then you get kinda overwhelmed how you're supposed to actually choose stocks and when to sell them and then finally you learn that 99% of the time you should buy index funds and stop stressing about it.
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Jan 25, 2024 00:49
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Is there ever a good reason to bother with small cap indexes like the Russell 2000?
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Jan 25, 2024 00:59
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For my first backdoor roth in 2023, is is normal to have the 1099-R show the full 6.5k in 2a Taxable Amount and have distribution code of 2--Early distribution, exception applies (under age 59½), or did I gently caress something up?
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Jan 25, 2024 01:35
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Xenoborg posted:For my first backdoor roth in 2023, is is normal to have the 1099-R show the full 6.5k in 2a Taxable Amount and have distribution code of 2--Early distribution, exception applies (under age 59½), or did I gently caress something up? Yes, and you’ll report the conversion through Form 8606 make it non taxable
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Jan 25, 2024 01:36
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