Spreadsheet to compare mutual fund vs ETF returns

[Pointedstick]

I found myself needing to compare a commission-free mutual fund with a high expense ratio (BTTRX) to a non-commission-free ETF with a low expense ratio (TLT) so I made a spreadsheet to help me figure out which was the better deal in the long run. It turns out that the answer really varies based on what the ETF commission is and how many trades you make per year. Unless the mutual fund has a truly ridiculous ER (>0.85%), 12 or more ETF trades a year nearly always favors the mutual fund, while 6 nearly always favors the ETF. I thought I'd share the spreadsheet so others could play around with this data, too.

https://docs.google.com/spreadsheet/ccc ... G9jdDFDMXc

Here's the result with  BTTRX (0.56%) vs TLT (0.15%), with 12 yearly trades of TLT at 8.95/trade:

[Greg]

That's interesting regarding the pricing of the two. After reading through this forum however I just started buying 30 year bonds from Fidelity since I didn't want to pay a transaction cost everytime I purchased TLT.

As an alternative however, Sharebuilder has $4.00 automatic trades every tuesday which you could use if you still wanted to use TLT. I use this with my ING savings account with my gold ETF portion to just buy stuff every now and then and park the rest in the savings account. TD Ameritrade also seems great in regards to the fact you could get VTI, SHY, and TLT there with no transaction costs (minus the counterparty risk if you had everything besides gold in Ameritrade).

Not sure how many trades you could do then if your transaction trading costs went down to $4, or even better, $0.

[Pointedstick]

I'm quite happy with my Ameritrade account for just that reason. 3/4 of the ETFs (VTI, EDV, SHY) are permanently commission-free, and I got a referral code when I signed up that gave me something like 500 free trades, which I use for GTU. I haven't paid a red cent to Ameritrade so far!

This situation here is for my 401k, which mercifully has a self-directed Schwab brokerage option. Unfortunately, Schwab's bond desk is pretty lame and skimpy, which is why I went for TLT instead. Sadly, Schwab's only commission-free ETFs are the ones they offer, but I feel blessed enough with the flexibility I do have. I hear horror stories about 401k plans with absolutely abysmal options.

[Greg]

I'm quite happy with my Ameritrade account for just that reason. 3/4 of the ETFs (VTI, EDV, SHY) are permanently commission-free, and I got a referral code when I signed up that gave me something like 500 free trades, which I use for GTU. I haven't paid a red cent to Ameritrade so far!

This situation here is for my 401k, which mercifully has a self-directed Schwab brokerage option. Unfortunately, Schwab's bond desk is pretty lame and skimpy, which is why I went for TLT instead. Sadly, Schwab's only commission-free ETFs are the ones they offer, but I feel blessed enough with the flexibility I do have. I hear horror stories about 401k plans with absolutely abysmal options.

Out of curiosity, I'm guessing you're talking about TD Ameritrade. And if so, for the 500 free trades, aren't those only for the first 60 days of account opening and then they expire? Or do you have a different offer where they do not expire.

[Pointedstick]

Right, it's TDAmeritrade. *looks over the terms and conditions* Darn, it is only for the first 60 days.  Oh well, I guess I can't really complain since I've definitely taken advantage while I've been refining my strategy, swapping TLT for EDV and IAU for GTU, for example.

[Greg]

Right, it's TDAmeritrade. *looks over the terms and conditions* Darn, it is only for the first 60 days.  Oh well, I guess I can't really complain since I've definitely taken advantage while I've been refining my strategy, swapping TLT for EDV and IAU for GTU, for example.

I was gonna say, if that were true, I'd possibly never have to make a trade again for the rest of my life. Or if those trades were valued at $7 a trade, that's $3500 they are losing out right there. I was thinking they couldn't possibly have a string attached to that deal. But a person can always dream though...

[Greg]

As a sidenote though, here's an idea if you want to get 30 free trades every month. The only catch, you need to keep $25,000 in either Bank of America accounts such as checking, IRA, etc. It's a big catch (and obviously in the FDIC-insured category for cash), but it might potentially be useful for some.

http://www.merrilledge.com/m/pages/zero ... rades.aspx

[Pointedstick]

As a sidenote though, here's an idea if you want to get 30 free trades every month. The only catch, you need to keep $25,000 in either Bank of America accounts

I'd say that's another catch right there! 

[clacy]

It's all relative to the amount of each trade you're making as well.  A $9 commission is significant for a $5k or $10k purchase, but not so much on a $50k purchase.  The higher the amount, the more it favors an ETF with low ER versus a mutual fund in most cases.

I have accounts at Vanguard, TDameritrade and Scottrade.  The first two have a wide range of ETF's that can be traded commission free and Scottrade has an enormous list of mutual funds that are no-fee.

With that configuration, I rarely have to pay for a trade, with the exception of gold trades.

[Greg]

I have thought about gold trades for gold ETFs and how I have yet to see GLD, or IAU, or anything like that as a commission-free investment. Do you think this is on purpose how no one offers this? Would the brokers be making too little money from offering something like this as a commission-free because so many people would buy into it then and nothing else from that broker?

[smurff]

Gold is "out of the system" as far as financial firms (banks, brokerages) go, even though they're easier to do now that they're ETFs.  There's just an anti-gold bias; you can hear it in disparaging remarks made every time the subject comes up.

It's hard for them to make money on it in all the infinite numbers of ways they can with stocks (especially) and bonds.  And they don't want any potential liability (lawsuits) over a non-standard investment like gold when the bull market inevitably ends, especially if they encouraged speculation in it via free ETFs.  (I think I'm thinking too highly of them here in terms of social responsibility; in reality they probably don't care as long as they're making $ today.) So I'm not surprised that the brokerage firms do not allow fee-free trading in gold/silver ETFs--but I also would not be surprised if one of more of them decided to do this if they thought they could gain an advantage from doing it, even if temporary.

[Greg]

Gold is "out of the system" as far as financial firms (banks, brokerages) go, even though they're easier to do now that they're ETFs.  There's just an anti-gold bias; you can hear it in disparaging remarks made every time the subject comes up.

It's hard for them to make money on it in all the infinite numbers of ways they can with stocks (especially) and bonds.  And they don't want any potential liability (lawsuits) over a non-standard investment like gold when the bull market inevitably ends, especially if they encouraged speculation in it via free ETFs.  (I think I'm thinking too highly of them here in terms of social responsibility; in reality they probably don't care as long as they're making $ today.) So I'm not surprised that the brokerage firms do not allow fee-free trading in gold/silver ETFs--but I also would not be surprised if one of more of them decided to do this if they thought they could gain an advantage from doing it, even if temporary.

I agree with you on this. I however tried as much as possible to get fee-free commissions through using Sharebuilder and their promo codes you can find on the internets. Searching around a bit you can find ways to not pay for a couple of transactions through free trade credits. I pretty much only buy IAU there but perhaps if I wanted to do VP stuff I could do it with Sharebuilder as well. Ideally though I'd rather have Vanguard or Fidelity offer something (even TD Ameritrade or somebody) to offer free trades but my ad hoc way works for now.

[smurff]

1NV35TOR, l'll try your ad hoc method.  I had been using my TD Ameritrade account for years, then opened a Fidelity account in December.  I think I'm ready to open a Sharebuilder account.  Good to spread the eggs around different baskets.

[Greg]

1NV35TOR, l'll try your ad hoc method.  I had been using my TD Ameritrade account for years, then opened a Fidelity account in December.  I think I'm ready to open a Sharebuilder account.  Good to spread the eggs around different baskets.

Good plan in my eyes. There are other items as well regarding sharebuilder. One is to try and find a code that will be like a $50 code to open an account which is always nice. Two is that the free automatic trade credits only allow you to purchase (not sell, you need to spend $9.95 to do that but you can occasionally find real-time trade credits as well through promo codes) on Tuesdays. Three, which I kinda like, is if you want to, you can set up an ING savings account (FDIC-insured which has been spoken about a lot on this forum) and try to find a promo for that too.

The beauty of having the savings account though is that you can do an instant transfer of money from ING Sharebuilder to another ING-linked account. That way you can just keep money in the savings account for a higher interest rate (0.8% as of June 2012) and if you want to trade, just move the funds over to Sharebuilder without the wait.

I'm done with my sales message for my Salesmanship merit badge now.

[Pointedstick]

Just got this one in my inbox; new Sharebuilder users who deposit > $10,000 by the end of the month can get $200 by using the code "JUNEBONUS". I'd also be happy to provide ING direct referrals. IIRC you get $25.

[Greg]

Just got this one in my inbox; new Sharebuilder users who deposit > $10,000 by the end of the month can get $200 by using the code "JUNEBONUS". I'd also be happy to provide ING direct referrals. IIRC you get $25.

That sounds like a great plan. Hopefully if you haven't signed up yet I can send you a private message so that I can get your email to send you the Sharebuilder link. Looks like I can get 20 bucks out of it (5 automatic trades) and you can get $50 bonus out of it. Wonder if we can get more people into this.

[Greg]

I saw this in a previous post about VTSAX and how it has the same expense ratio as VTI and is the admiral share class of VTI. It has a minimum of $10000 but you wouldn't have bid-ask spreads. Not sure if these would be significant enough to warrant needing the mutual fund over the ETF from a cost-savings stance.

[KevinW]

I have a slight preference for VTSAX over VTI since transactions go through Vanguard directly instead of through a stockbroker and stock exchange. As a result and as you said, there is no bid/ask spread, broker commission, or risk of being affected by some weird market anomaly such as the flash crash.

[Greg]

I have a slight preference for VTSAX over VTI since transactions go through Vanguard directly instead of through a stockbroker and stock exchange. As a result and as you said, there is no bid/ask spread, broker commission, or risk of being affected by some weird market anomaly such as the flash crash.

Well the bid-ask spread is around $0.02 right now to a stock price of $69.69 at time of writing or around .029% spread between bid/ask. If purchasing through Vanguard or TD Ameritrade you can get no broker commission. And a flash crash might be useful if you put money in during the crash, of course that's kinda a falling knife moment so you could get burned (or cut).

Whenever I rebalance it might be useful to go into VTSAX. As of now though it wouldn't be worth selling my VTI which is in taxable to buy VTSAX. My guess is it wouldn't be worth the tax to move from one to another. During rebalance that is a good idea though.

[Pointedstick]

I have VTSAX/VTSMX (through my 401k) in tax-advantaged accounts and VTI in taxable. The bid/ask spread doesn't bother me too much for a fund as heavily-traded as VTI.