Index Funds vs ETF's, question about how to buy one or the other..

SubaruSTiMike · #1 08-13-2007, 02:07 PM

Hey guys, so I am about to put a small amount into a Vanguard Index Fund, specifically the Total Stock Market Index. I am very confused on what the Index Fund is. At first I thought it was something I can buy through a broker, say, Ameritrade. I was doing more research and was getting ready to sign up for Ameritrade when I realized that the Vanguard index funds are like Mutual Funds but tweaked a bit so there are less fees and track a broad range of companies. I was looking at all the price per transaction for a stock rather than mutual funds to determine which broker I wanted to go into, but since I'm doing an index fund, would it be smarter to sign up with Vanguard and hold my money with them? Since I'm not doing ETF's, I shouldn't be looking at the transaction fee for stocks but mutual funds right? There are very few fees for a Vanguard account. No purchase fee so I can put in more money without being penalized, and if I choose e-service, I won't be charged a 20 dollar fee per year for having a fund with them. So, my question boils down to..

If I wanted to buy a Vanguard Index Fund, would it be best to just open an account with Vanguard and buy it through them?

Is there a way to buy index funds through brokers instead of the company offering the fund? Like Ameritrade or Etrade? For mutual funds, they charge 50 dollars for "no loads" funds and zero for "load" and "no transaction fee" funds, what do those mean?

gull · #2 08-13-2007, 04:09 PM

Either way is great.

(VTMSX is the fund, and VTI is the ETF.)
VTI has a slightly lower expense ratio. This means that each year you will pay slightly less toward the operating expenses of the fund. However, you also have to pay commissions and spreads to buy or sell it.

If you're investing a bunch of money, or for a long time, the ETF may be slightly cheaper. In addition, it's easier to harvest tax losses with ETFs. Funds are simpler to invest in though, and also lack the commissions and spreads that may make ETFs more expensive, especially if you invest or rebalance frequently.

mtgordon · #3 08-13-2007, 04:45 PM

I've been going the ETF route using Zecco to avoid the commission fees. However I've been using funds at Vanguard for my tax exempt stuff. Basically my only reasoning behind that is there are some funds that don't have ETFs yet. Now that I'm writing this out I'm wondering if I should have done the funds in taxable account......