Vanguard is one of the biggest asset management companies in the world. As of Jan. 31, 2021, it had about $7.2 trillion in assets under management (AUM). Read more to know which investment fits you between Vanguard ETF and Vanguard Mutual Fund.
Due to its long list of low-cost mutual funds, it has become a popular choice for investors. The Vanguard Group has also added a full menu of exchange-traded funds (ETFs) to its list of investment products, making it one of the top providers of Vanguard ETF and Vanguard Mutual Fund types of investments.
Most index mutual funds from Vanguard also have an ETF. The way both Vanguard ETF and Vanguard Mutual Fund products are managed and how much money they make are similar, but there are some differences that may make one product better for some investors than the other.
There are also differences in Vanguard’s expense ratios between mutual funds and ETFs that you need to look at to make the best choice.
Vanguard Mutual Funds
When it comes to Vanguard products, the debate over Vanguard ETF and Vanguard Mutual Fund comes down to how much money is being invested.
Also, for many of its mutual funds, Vanguard offers up to three classes of shares: Investor Shares, Admiral Shares, and Institutional Shares. In exchange for higher minimum investments, each class offers lower expense ratios and better performance.
Most Vanguard mutual funds require an initial investment of at least $3,000, but some only require an initial investment of $1,000.
Average minimums for lower-cost Admiral Shares are $3,000 for index funds, $50,000 for actively managed funds, and $100,000 for some sector-specific index funds.
Institutional Shares are made for large investors like banks, and they usually have a minimum of $5 million.
Some funds with high transaction costs may have redemption fees that range from 0.25 percent to 1 percent of the amount of the transaction.
This is done to discourage short-term trading that is based on speculation. Aside from this one thing, Vanguard does not charge sales loads or commissions up front or at the end.
ETFs are more flexible than stocks because they trade like stocks and can be bought and sold all day long for as little as one share.
As of February 15, 2022, Vanguard had 76 ETFs, and the market price for each share was between $49 and $406.
ETFs often have lower expense ratios than mutual funds, but they can only be bought and sold through a brokerage account. There could be commission fees for ETF trades.
Investors need to think about a number of things when deciding between Vanguard ETF and Vanguard Mutual Fund. One is whether the investor wants to buy and hold or trade. This can help figure out which product may be better.
In general between Vanguard ETF and Vanguard Mutual Fund, ETFs may be better for investors than mutual funds if they want a lower minimum investment amount and more control over the prices at which they buy and sell.
Investors who want to make automatic investments or withdrawals on a regular schedule can only do so with mutual funds, not with ETFs.
Distinctions to note
The biggest difference between Vanguard ETF and Vanguard Mutual Fund is whether or not you can trade the shares. Mutual fund shares only have a price once a day, at the end of trading.
Investors can place trade orders at any time during the trading day, but the trade doesn’t happen until the end of the day.
The popular Vanguard 500 Index Fund and the Vanguard S&P 500 ETF are good examples of how mutual funds and ETFs are different in terms of cost and trading.
Most of the Vanguard mutual funds and ETFs work in the same way.
The Internal Revenue Service (IRS) treats ETFs and mutual funds the same in that investors pay taxes on capital gains and dividend income.
Even if you have the same portfolios in ETFs and mutual funds, your tax bill is usually going to be less because of how taxable events are handled in ETFs.
Fees for ETFs are also usually lower than fees for mutual funds. Even though there are some mutual funds where you don’t have to put in a lot of money at once, many mutual funds have higher minimum investments than ETFs.
How do Vanguard mutual funds and exchange-traded funds vary from one another?
Even though Vanguard ETF and Vanguard Mutual Fund products are similar in how they are managed and how much money they make, there are some differences that may make one product better for some investors than the other.
ETFs give you more freedom because you can buy and sell them at any time during the day. Mutual fund shares only have a price once a day, but economies of scale may help them out.
Most index mutual funds from Vanguard also have an ETF. The biggest difference between Vanguard ETF and Vanguard Mutual Fund is whether or not you can trade the shares.
ETFs can be bought and sold at any time during the day, but mutual fund shares can only be bought and sold once a day. In general, ETFs may be better for investors than mutual funds if they want a lower minimum investment amount and more control over the prices at which they buy and sell.
However, investors can use mutual funds but not ETFs if they want to make routinely planned automatic investments or withdrawals.