Vanguard seems to be one of those rare companies that wants to give customers more for less. The brokerage recently eliminated transaction fees for their proprietary exchange-traded funds (ETFs). They’ve been offering no-load, no-commission mutual funds, but with mutual funds you don’t have the flexibility to buy or sell while trading is open.
While I can place an order to buy VTSMX at any time during the day, Vanguard holds the order until the market is closed. They can then calculate the price. In a way, I don’t know exactly what I’m going to get when I buy a mutual fund.
With ETFs, you can watch the price fluctuate and time your purchase down to just a few seconds. Timing the market is rarely advisable, but that seems to be what Vanguard is encouraging. Nothing in life is free, even if it’s marketed to be. It’s in the brokerage’s interest to attract more investors to ETFs because they make money for the company.
The expense ratio — the percentage of assets taken out of the fun every year to give to the fund managers and essentially subtracted from the price of the shares — is 0.07% for VTI, Vangard’s total stock market ETF. This is less expensive than the equivalent index mutual fund, VTSMX, sporting an expense ratio of 0.18%.
Another advantage to ETFs is that there is no minimum investment amount, unlike Vanguard’s mutual funds.
The only ETF I own is the iShares Telecommunications Sector ETF (IYZ) in an account on Sharebuilder, and it’s down significantly from the date I purchased the fund.
Are ETFs right for you? Here are some suggestions for determining whether the better choice is an ETF or an index mutual fund.
Commission-free Vanguard ETF trades and additional cost savings unveiled, Vanguard, May 4, 2010
Updated September 2, 2011 and originally published May 6, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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