Author Topic: What is your experience with ETFs, iShares, and Vanguard funds? (Read 7698 times)
I would like to hear about everyone experiences using ETFs. What is your experience? Have any of your tried BlackRock's iShares? Or do you prefer ETFs over Vanguard's well-known funds like the VTSAX, VBTLX, and MMM's favorite VFINX? If so, why? Thanks in advance for sharing. Cheers!
« Last Edit: March 13, 2013, 11:39:31 AM by Stashtastic Momo »
Re: What is your experience with ETFs, iShares, and Vanguard funds?
Quote from: Stashtastic Momo on March 13, 2013, 10:48:15 AM
I previously have used WisdomTree, iShares, and Vanguard ETFs, in that order. I currently use only mutual funds. The main downside, in my opinion, is that they are subject to a bid-ask spread, whereas with mutual funds, you always get NAV. I was personally burned a couple times using automatic investing of ETFs. This can be an upside if you are willing to watch the ticker like a hawk and wait until sell activity is abnormally large, so you can buy at discount, and then use a limit order. I prefer to automate my investing though, and know with Vanguard mutual funds, I'm always getting a fair shake. I also tend to not tax-loss harvest.
If you are a beginning investor, I'd stick to mutual funds, if you are more "sophisticated", ETFs can be advantageous. This provides a good comparison: http://www.bogleheads.org/wiki/ETFs_vs_Mutual_Funds
In general, index mutual funds are cheaper than the equivalent ETF. Bogleheads has plenty of Jack Bogle's thoughts on the subject.
An ETF can be a good deal for those who just can't accept a broader index fund and who want to focus on a niche product that otherwise would only be available from an actively-managed mutual fund. By "niche" I mean a country fund or a specific equity market cap or an emerging-market fund. It's probably outside the circle of competence for about 95% of investors.
I like ETFs because I can sell covered calls and naked puts. There are a couple times a year when the options prices go nuts and money can be made. Notice that I said a couple times a year, and I spent 18 months learning from covered calls before I ventured into naked puts. At some point (within the next decade) I'll be done with options, and then I'll move from ETF shares to an equivalent mutual fund.
ETFs are valuable if you're in the early stage of investment. Mutual fund minimums are typically $3,000 or so, and if you need multiple funds for diversification, that can quickly add up well into the $10,000+ range unless you find a low fee all-in-one fund that does it - meaning your money is sitting idle until you can come up with that minimum. With ETFs, you can buy in as soon as you have the ETF price - which is far far less than a mutual fund minimum.
However, for recurring investments, I've found mutual funds to be more convenient (at least with how Vanguard's site is set up). I couldn't figure out a way to make automatic recurring investments from my deposits with ETFs, but I was certainly able to do it for mutual funds - and now that I have ample $$$ to meet the minimum threshold for fund investment, that's the route I have opted to take (lone exception being my VNQ investment - which will be converted to its mutual fund equivalent at some point in the future when my overall Roth balance is higher).
I think ETFs tend to be better for funds you intend on holding for a while compared to their identical mutual fund counterpart. Vanguard's ETF VTI has fees way lower than their equivalent mutual fund. There is a small bid-ask spread (around 0.1% or so), but you'll only realize that difference when you go to sell. So if you're going to hold something for 20 years, getting a lower expense ratio is going to be worth it even if there is a bid-ask spread.
It's probably going to be a wash more or less anyway.
You are just my hero. I have been trying to find the time to dive into options for several years. They seem to be so complex, fascinating and useful... Maybe one day, maybe when I am retired ;-).
Quote from: Freestyler on March 14, 2013, 04:44:23 PM
It can still be like juggling running chainsaws... blindfolded.
I do it now because I'd rather gain the skill and the appreciation of how much effort it takes. I don't want to be sitting around in my 70s (perhaps with declining cognition) and thinking "Gee, I gotta get me some o' them there options just like that nice guy on CNBC." Over the last decade I've tried just about every style of investing that seems to have a chance, and the best combination of risk/reward/effort has been passive index investing. Every year I trade less and surf more.
The best ETF combination of asset class and volatility that I've found so far has been the iShares S&P600 small-cap value ETF (IJS). My favorite stock for selling options is Berkshire Hathaway's "B" shares. We've owned those for over a decade now so we're familiar with their behavior, and the company has a policy of buying back some shares when the price drops to within 110%-120% of book value. They won't buy all the shares on the market at that price, but they'll certainly soften the drop.
If you're willing to start investing 20 minutes a day now, then read a library copy of McMillan's options textbook. (20 minutes/day is more than enough, even if you find it fascinating.) I only keep enough open contracts to stay within our rebalancing bands so that if the markets go more nuts than I expected then our asset allocation won't be too far out of whack. If you're selling more than 5-6 times/year then you're probably getting greedy.
An unexpected benefit has been that we no longer agonize over rebalancing. ("But it might go up even more!" or "But the markets might not have bottomed out yet!") When we're at the point where we'd need to sell 500 shares or buy 500 shares then we sell a call or a put instead. It's a lot like having your cake and eating it too.
The thing of the chainsaws sounds a bit scary... ;-). It happened the same to me with risk/reward/effort regarding indexed funds. Though I wouldn´t say no to very clear arbitrage scenarios, I wouldn´t come back to time consuming (and often failed) investing either. It also takes some time and dedication to find, assess and take profit on arbitrages though.
Thanks for the recommendation on the book. I also have one from Lamothe I think, aside from a couple of other academic texts that contain information about options. Just need to find the time and ease to read them and put the knowledge into practice.
Though I know experts do it with good results under controlled circumstances, selling options looks too risky for a novice.