Open End Mutual Funds vs ETFs

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jalanlong
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Open End Mutual Funds vs ETFs

Post by jalanlong » Tue Jun 23, 2020 12:14 pm

I have been using ETFS for my 4X PP. However, I have recently opened an account at Fidelity and I see they have some open-ended mutual funds that have even better expense ratios. They have a new Total Mkt Index with 0% expense ratio and a long Treasury mutual fund with a .03% expense ratio.

It seems like everyone is moving towards ETFS but are there any disadvantages to going the other way and using traditional mutual funds for the stock and LT Treasury parts of the PP?
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Re: Open End Mutual Funds vs ETFs

Post by pmward » Tue Jun 23, 2020 12:28 pm

jalanlong wrote:
Tue Jun 23, 2020 12:14 pm
I have been using ETFS for my 4X PP. However, I have recently opened an account at Fidelity and I see they have some open-ended mutual funds that have even better expense ratios. They have a new Total Mkt Index with 0% expense ratio and a long Treasury mutual fund with a .03% expense ratio.

It seems like everyone is moving towards ETFS but are there any disadvantages to going the other way and using traditional mutual funds for the stock and LT Treasury parts of the PP?
No drawbacks other than some potential capital gains in the stock fund. If you're planning on holding forever then these are fine. I happen to use the Fidelity long term treasury fund myself.
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jhogue
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Re: Open End Mutual Funds vs ETFs

Post by jhogue » Tue Jun 23, 2020 4:41 pm

It does not make much difference, but you should also note that an ETF's price will fluctuate during the market open hours. A mutual fund is re-priced after the market closes.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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mathjak107
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Re: Open End Mutual Funds vs ETFs

Post by mathjak107 » Tue Jun 23, 2020 4:57 pm

There can be quite a few differences ...

Etfs can be more volatile since not only can they be traded and are priced every moment like stocks but they can be sold short .

Open ended funds are priced at net asset value ..etfs are not ..they can be priced at a premium or discount to nav.

Etfs can have pricing issues in volatile times ...back in the flash crash a few years ago we had some popular etf prices break down

DVY somehow became disjointed and ended up trading down 35% While the assets fell 5% ...it took a few minutes to stabilize .


So they can be a bit different at times then an open ended fund.

Taxes can be a lot different as open ended funds have to distribute their gains every year ..on the other hand etfs can become tax torpedoes down the road with decades of pent up gains to deal with
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Re: Open End Mutual Funds vs ETFs

Post by pmward » Tue Jun 23, 2020 5:24 pm

mathjak107 wrote:
Tue Jun 23, 2020 4:57 pm
Open ended funds are priced at net asset value ..etfs are not ..they can be priced at a premium or discount to nav.

Etfs can have pricing issues in volatile times ...back in the flash crash a few years ago we had some popular etf prices break down
Technically speaking, mutual funds can sell away from NAV in times of tight liquidity just like ETF's do. They can fluctuate from nav in a time of mass withdrawal. HOWEVER you will likely never know this because mutual funds are only required to officially post the NAV once per quarter in the prospectus whereas ETF's are required by law to officially post NAV daily. I did a lot of research into this back in March when bond ETF's spread away from NAV. I was surprised as I had originally assumed like you that mutual funds are priced to NAV daily. Mutual funds are still more liquid than the underlying assets (especially in less liquid markets), so they can very much can move from NAV. Any asset that is more liquid than the assets it holds can have this happen (think of a stock trading below book value). Obviously, ETF's can take some strong acute stress intraday like in the flash crash that mutual funds are not susceptible to. ETF's also have a bid/ask spread like a stock (which is where you probably took most of your losses in the flash crash). There is some benefit in mutual funds knowing in advance their in and out flows and only having to square up once a day. This gives them time to try to work deals with other institutions instead of having to sell all in the public markets. But mutual funds are not immune from floating from NAV, you just will never know if/when it does. Ignorance is bliss though I guess.
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Re: Open End Mutual Funds vs ETFs

Post by mathjak107 » Wed Jun 24, 2020 3:21 am

what caused the losses to etf's in the flash crash are still unsure .

https://money.cnn.com/2015/08/24/invest ... index.html
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