Mutual funds that are open end, always trade exactly at NAV, at the end of the closing day so your buying them for the correct price exactly.
ETFS trade at premiums or discounts throughout the day so sometimes you get a good deal and sometimes you don't. Usually its that you do not.
ETFS trade at a spread irregardless of the the discount/premium and you ALWAYS lose a little bit on the spread both when you BUY and SELL.
Mutual funds in theory have additional expenses because the mutual fund manager has to maintain share ownership/transaction information of the fund holders and do communication with them and send tax forms and such. Whereas with an ETF, the ETF management outsources that task to the brokerage firms that investors trade the ETFS on.
ETFS are more liquid than mutual funds because if the stock market drops 50% in one day, intraday, you can buy more of the ETFS immediately to rebalance back into stocks as you sell some of your bond ETFS (which would probably be up 50% on a day the stock market is down 50%!!). If you use mutual funds then you have to wait until the end of the business day. So if you sell your bond ETFS mid-day at a 50% gain, and then make a mutual fund stock buy order, but by the end of the day, the 50% drop reduced down to a 30% drop, you spent much more for the mutual fund than you would have otherwise been able to buy the ETF version mid-day.
If your using Vanguard funds, its my understanding the ETFS are just a different share class than the mutual funds and you can convert your mutual fund into an ETF version for free, without incurring a taxable event. Don't think you can go the other way around though??
If your a compulsive portfolio checker, ETFS change their price throughout the day so you can see how your PP is doing mid-day without having to wait until the end of day for the NAV to close. This could actually be a bad thing if your trying to avoid over checking your PP!!
Because of the point about not having to wait until the end of the trading day during a big crash, I found that I prefer ETFS over mutual funds, in spite of the small premium/spread cost. However, if you really think about it, the problem occurs when trying to sell or buy a mutual fund mid-day in a blackened swan event. So if you have at least half of each asset in a non-mutual fund version, then you should be okay.
Technically, going by pure PP, the only asset that should be in an ETF/mutual fund is stocks. Because your better off holding gold coins, individual bonds, and individual treasury bills. Some of us like myself have paper gold, but there's no "mutual fund" for paper gold, they are all ETFS or ETNS anyway, so no discussion needed. It really comes down to the stocks.
Part of me feels like mutual funds are "safer" than ETFS but maybe that part of me is the old stogey who's pumping his fist at kids in his lawn. If so, then maybe splitting my Vanguard stock holdings into an ETF and a mutual fund 50-50 makes sense so I can quickly liquidate the ETF in the event the stock market doubles in one day. But then again, realistically, I should be okay keeping a mere 20% of my total stock holdings in ETFS because if the stock market rises to a rebalancing band point, that 20% of the stocks because quite bigger.
Then again, because its my understanding the ETFS and Mutual Fund version of the same fund at Vanguard is really the same thing, it probably doesn't make a difference if it's an ETF or a Mutual fund. PERHAPS the best alternative is to continue holding the ETFS I currently have, and when it comes time to buy MORE stocks, I put in a buy order for the mutual fund.
Because when I am buying more stocks on a regular day, I don't need to "lock in" on the intra-day price because the price fluctuation throughout the day doesn't matter too much. Maybe I'm getting a better deal by buying mid-day and maybe I'm not. Who knows? It really could go either way. However, by buying at the END of the day, with the mutual fund, the one thing I do know is I'm buying at NAV and there's no spread. So I'm getting the best possible deal. Also, I think the ETF holders are subsidizing the Mutual Fund holders of the manager administration cost of dealing with mutual fund shareholders. So in that respect, maybe the Mutual Fund is getting a better deal?
Anyone know if I can convert ETFS to Mutual Funds of the same fund at Vanguard? If so, I may convert a large chunk of my existing holdings just for the heck of it. Or maybe it really doesn't matter once I already hold them because I ate the expense of the premium/spread when I first bought them??
