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whyme

New cost reductions from Vanguard

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Nice to see that Vanguard continues to cut fees on some of their largest funds.  Total Stock Market and SP500 funds are now 0.03% (down from 0.04%).  Total International, Total Bond Market, Total World Stock and Emerging Market funds are also getting modest cost reductions. The article below only addresses ETFs and as of today my Vanguard accounts—which include both "regular" index funds and etfs—show the lower expense ratios only on the ETFs.  I will be surprised (and disappointed) if the Admiral shares aren't adjusted to the same expense levels as the ETFs within days.

https://finance.yahoo.com/news/vanguard-drops-hammer-etf-fee-143705599.html

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I’ll also be irritated if, relative to the equivalent ETF, I have to pay an extra 0.01% for VTSAX and an extra 0.02% for VTIAX. The fact that Fidelity is offering a total market domestic and international for 0%...well, that’s just salt in the wound.

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Is there any reason why I would not want to use the ETF equivalents of my VTMAX and other ETF equivalents of Vanguards index funds in my 457 or 403(b)?

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Hmmm.  After this evening's update, the Admiral Funds still show the higher expense ratios.  And the announcement of this round of price cuts from Vanguard does not mention the traditional funds at all, it strictly addresses ETFs.  https://investornews.vanguard/lower-expense-ratios-on-21-vanguard-etfs-means-more-savings-for-you/

PS: There is a thread about this at Bogleheads forum.  Consensus there seems to be that ETFs cost less to manage, so Vanguard is passing on the lower costs for ETFs with no intention of matching those cuts on the traditional fund side.  

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1 hour ago, MoeMoney said:

Is there any reason why I would not want to use the ETF equivalents of my VTMAX and other ETF equivalents of Vanguards index funds in my 457 or 403(b)?

In a 457 or 403(b) account, there is a good chance you do not have the option of choosing ETFs.  In an IRA account the practical distinctions are small (as far as I can tell) and you are likely to do well with either.  One advantage to the traditional funds is that you can purchase fractional shares, so you are able to immediately invest your entire amount of available cash, not dependent on share price.  Another advantage is that you buy and sell the Admiral funds at net asset value, where the ETFs are subject to additional market fluctuations and bid/ask price spreads. 

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It would be in my IRA's. As far as the market fluctuations, would that matter if I was letting it ride for the long term in that IRA account and not selling off shares?

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For long term holdings in an IRA, I don’t know of any significant disadvantage to ETFs. There’s just the minor bother of having to purchase whole shares when you bring in new money, which sometimes leaves you with a few dollars you wanted to invest lingering in your “sweep” account.  My own Roth IRA consists mostly of Vanguard ETFs, plus a bond fund that I usually drop those stray bits into.

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My laziness meant that I didn’t want to take the time to learn about spread/bid/whatever. Mutual funds just seemed easier...never invest in something you don’t understand.

My conservative nature sent me towards mutual funds because I think they can be converted to ETFs, but not the other way around.

As long as you buy and hold instead of day trading ETFs then it really doesn’t matter. 

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Thank you both. I asked because I thought the ETF's have a lower cost if held but I recognize the Vanguard index funds are low enough. 

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30 minutes ago, MoeMoney said:

I asked because I thought the ETF's have a lower cost

Some of them do. That is a totally valid reason to switch. One or two basis points (0.01%) isn’t a huge deal, but it is something.

I’ll be lazy for a bit. I’ll hope Vanguard lowers the Mutual Fund shares. I’ll also continue to monitor the 0% funds from Fidelity. 

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I just called Vanguard and authorized them to convert some Admiral funds to the equivalent ETFs.  No cost, quickly accomplished, the transaction is at net asset value and they can convert 100% of the fund, including fractional shares (on both sides of the conversion).  In a taxable account, there is no taxable event in the course of this conversion.  It looks to me that Vanguard is going to favor ETFs going forward (the new lower fees; I'm also remembering how they converted all of their accounts to brokerage accounts awhile back), so I'm getting with the program (so far just in part).  The cost advantage is very small, so I did this out of curiosity about how it works more than visions of future riches.  Bottom line: nobody needs to make that switch, but if you do want to swap into the equivalent ETFs, it's easy.

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