Funds or etfs for Stocks

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Matthew19
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Funds or etfs for Stocks

Post by Matthew19 » Thu Jul 02, 2020 4:22 pm

I’ve had Fskax in a taxable at fidelity for years. I’m just hearing about better tax management for ETF. I don’t understand, I thought owning the fund directly was the preferred method?
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Smith1776
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Re: Funds or etfs for Stocks

Post by Smith1776 » Thu Jul 02, 2020 5:25 pm

The narrative behind ETFs being more efficient lies in the fact that they do not have to trade internally nearly as much as traditional mutual funds.

When an ETF unit holder sells his/her shares, the fund provider usually has no involvement. With a traditional mutual fund, the fund provider must churn the portfolio internally to meet creation/redemption requests. For the disciplined buy and hold investor that is not tempted to trade ETFs, the ETF structure can be modestly less costly.
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Matthew19
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Re: Funds or etfs for Stocks

Post by Matthew19 » Thu Jul 02, 2020 11:03 pm

Smith1776 wrote:
Thu Jul 02, 2020 5:25 pm
For the disciplined buy and hold investor that is not tempted to trade ETFs, the ETF structure can be modestly less costly.
Well, crap. Is this like a sell your mutual funds for etfs thing or just only buy etfs from here out? The capital gains would be crazy for me.
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Re: Funds or etfs for Stocks

Post by mdwilson1991 » Fri Jul 03, 2020 12:00 am

Consider also that ETFs have bid/ask spreads and may sell at a premium or discount to to the value of the underlying assets. And possibly, you might pay to make the trades to sell your funds and buy ETFs.

So, it's not as straightforward as just some tax savings.
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Smith1776
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Re: Funds or etfs for Stocks

Post by Smith1776 » Fri Jul 03, 2020 1:12 am

Yeah, as per above. If you are with a commission-less brokerage platform (such as Wealthsimple Trade here in Canada) that's amazing in combination with ETFs.
“My natural state is an outsider, and no matter what group I'm in or where I am, I've always felt like I'm outside the group, and I've always been analyzing the group.” - Michael Burry
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Re: Funds or etfs for Stocks

Post by mathjak107 » Fri Jul 03, 2020 4:16 am

Smith1776 wrote:
Thu Jul 02, 2020 5:25 pm
The narrative behind ETFs being more efficient lies in the fact that they do not have to trade internally nearly as much as traditional mutual funds.

When an ETF unit holder sells his/her shares, the fund provider usually has no involvement. With a traditional mutual fund, the fund provider must churn the portfolio internally to meet creation/redemption requests. For the disciplined buy and hold investor that is not tempted to trade ETFs, the ETF structure can be modestly less costly.
actually the fund provider has to do a lot of behind the scenes work arbitraging the etf to the stock prices of the underlying assets to try to keep things fairly close
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Smith1776
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Re: Funds or etfs for Stocks

Post by Smith1776 » Fri Jul 03, 2020 5:35 am

mathjak107 wrote:
Fri Jul 03, 2020 4:16 am

actually the fund provider has to do a lot of behind the scenes work arbitraging the etf to the stock prices of the underlying assets to try to keep things fairly close
Well, there can be many market makers, but yes.
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Re: Funds or etfs for Stocks

Post by ahhrunforthehills » Fri Jul 03, 2020 10:09 am

One other factor you might want to consider is that your settlement period will probably different as well. For example, let's say there is a sudden major market correction and you need to re-balance some assets. The recent lock-downs are a perfect example when the market was swishing +/- 10% daily.

Imagine your allocation looked like 17% cash, 37% stock, 29% treasuries, and 17% gold. With an ETF, you can try to time the market (because you can trade all day long), whereas mutual funds only trade once per day at the close. However, an ETF will take longer to settle (i.e. how long you will wait to have the cash in your account so you can reinvest it). In extremely volatile markets you could have a somewhat less-than-ideal allocation for an extra day or two.

Not only do Mutual Funds settle quicker, but you can typically swap them for other funds with a Settlement Period of +0. So at the end of the trading day, you could have swapped your Stock Mutual Fund for a Short-Term Treasury Mutual Fund and have the transfer completed immediately.
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Re: Funds or etfs for Stocks

Post by Matthew19 » Fri Jul 03, 2020 10:53 am

ahhrunforthehills wrote:
Fri Jul 03, 2020 10:09 am
One other factor you might want to consider is that your settlement period will probably different as well. For example, let's say there is a sudden major market correction and you need to re-balance some assets. The recent lock-downs are a perfect example when the market was swishing +/- 10% daily.

Imagine your allocation looked like 17% cash, 37% stock, 29% treasuries, and 17% gold. With an ETF, you can try to time the market (because you can trade all day long), whereas mutual funds only trade once per day at the close. However, an ETF will take longer to settle (i.e. how long you will wait to have the cash in your account so you can reinvest it). In extremely volatile markets you could have a somewhat less-than-ideal allocation for an extra day or two.

Not only do Mutual Funds settle quicker, but you can typically swap them for other funds with a Settlement Period of +0. So at the end of the trading day, you could have swapped your Stock Mutual Fund for a Short-Term Treasury Mutual Fund and have the transfer completed immediately.
Good point, although I don’t completely understand how mutual funds price themselves. If I place an order intraday, I’m seeing the previous days price, but it wont fill until a new EOD price is made correct?
Last edited by Matthew19 on Fri Jul 03, 2020 11:10 am, edited 1 time in total.
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