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Taxable Account: VTSAX vs VTI

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  • Taxable Account: VTSAX vs VTI

    Relatively newbie when it comes to taxable investing. Per my wife and I's IPS we are looking to invest in a total stock market index in a taxable account. We are planning to invest at Vanguard in either VTSAX or VTI.

    Is VTI more tax-efficient than VTSAX in a taxable account because it is an ETF and may have fewer taxable events? Or is the difference negligible? Also considering the story I heard on the podcast regarding the unexpected capital gains surprise from Vanguard's target date retirement fund; I am leaning towards an ETF in our taxable account.

    Any thoughts?

    Thanks.

  • #2
    Negligible. Same same.

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    • #3
      Vanguard mutual funds and ETFs have basically equal tax efficiency due to their dual-share fund structure: ETFs vs mutual funds - Bogleheads

      Here are other considerations to take into account: ETFs vs mutual funds - Bogleheads

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      • #4
        How do people that invest in VTI deal with the problem of having to buy whole shares? For example, let's say I want to invest $1000/month, automate it to come out of the bank account. With VTSAX, the whole $1000 gets invested. If I am buying VTI, then there will be some left over that wasn't enough to buy a whole share. This is the reason I've always gone with the mutual fund Vs. the ETF. I want all the money working for me from day 1.

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        • #5
          Originally posted by JB14 View Post
          How do people that invest in VTI deal with the problem of having to buy whole shares? For example, let's say I want to invest $1000/month, automate it to come out of the bank account. With VTSAX, the whole $1000 gets invested. If I am buying VTI, then there will be some left over that wasn't enough to buy a whole share. This is the reason I've always gone with the mutual fund Vs. the ETF. I want all the money working for me from day 1.
          I don't automate it. Periodic lump investing. Some cash drag there of course but I have been more vigilant on excess cash lately. First world problems.
          I prefer the ETF for tax loss harvesting

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          • #6
            Owning the index fund does not have the same risk as the TDF. Vanguard made a structural change to a TDF that caused institutions to sell one class of the TDF to buy another. This drove a loss for those holding the TDF in taxable (which was always inappropriate because of this risk) but not for the underlying funds. You should in fact own index funds in taxable.

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            • #7
              Originally posted by childay View Post

              I don't automate it. Periodic lump investing. Some cash drag there of course but I have been more vigilant on excess cash lately. First world problems.
              I prefer the ETF for tax loss harvesting
              That's what I figured was what people did, but I just want to automate it and not have to think about it However, I assume Vanguard will allow partial share purchases someday down the line, doesn't Fidelity already allow it?

              Why are ETFs better/easier for TLH?

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              • #8
                Originally posted by JB14 View Post
                However, I assume Vanguard will allow partial share purchases someday down the line, doesn't Fidelity already allow it?
                yes

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                • #9
                  ETFs are better in almost every way, UNLESS you want to automate monthly contributions - then you can do that via mutual funds at a set dollar amount, whereas you have to manually buy via ETFs.

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                  • #10
                    Originally posted by xraygoggles View Post
                    ETFs are better in almost every way
                    VTSAX and VTI are two different share classes of the the exact same mutual fund. While VTI has a 0.03% vs. 0.04% expense ratio, VTI is subject to bid ask spreads, which can be detrimental in the accumulation phase.

                    With VTI, you have to place a limit (buy) or stop (sell) order at a known price. You should never use market orders. With VTSAX you will always get the market close price.

                    This is hardly a case that ETFs; "are better in almost every way." ETF holders tend to trade their portfolios rather then sticking to an IPS/Asset Allocation and buy/hold.

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                    • #11
                      Originally posted by JB14 View Post

                      That's what I figured was what people did, but I just want to automate it and not have to think about it However, I assume Vanguard will allow partial share purchases someday down the line, doesn't Fidelity already allow it?

                      Why are ETFs better/easier for TLH?
                      Because with MF you get close of market price if you sell as spiritrider mentions. I'm somewhat likely to be working at 4 EST even at the VA. Things can fluctuate a lot during the day

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                      • #12
                        Originally posted by childay View Post

                        Because with MF you get close of market price if you sell as spiritrider mentions. I'm somewhat likely to be working at 4 EST even at the VA. Things can fluctuate a lot during the day
                        On the flip side, if a single intraday swing wipes out what you were going to TLH then you're probably TLHing too much and that's a good way to really start to complicate your portfolio.

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                        • #13
                          Originally posted by CordMcNally View Post

                          On the flip side, if a single intraday swing wipes out what you were going to TLH then you're probably TLHing too much and that's a good way to really start to complicate your portfolio.
                          Yeah, I usually don’t bother until 5 figures. But I know POF for example will TLH for 4 figures.

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                          • #14
                            Originally posted by CordMcNally View Post

                            On the flip side, if a single intraday swing wipes out what you were going to TLH then you're probably TLHing too much and that's a good way to really start to complicate your portfolio.
                            Bingo.

                            When available, I always go MF route. Just easier.

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                            • #15
                              Isn't the bid ask spread on big funds like vti negligible?

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