Title: VTSAX vs. VTI — SWTSX vs. SCHB: Mutual Funds or ETFs for Long-Term Investing?

would you mind sharing the porfolio composition to decided on - I would love to learn

for a taxable brokerage account, I would generally prefer VTI over VTSAX and SCHB over SWTSX. In a Roth IRA, the distinction matters much less, and convenience can reasonably drive the choice.

The investment exposure is nearly the same within each pair. The real differences are tax mechanics, trading mechanics, portability, and automation.

Vanguard currently lists VTI at 0.03% and VTSAX at 0.04%. Schwab lists both SWTSX and SCHB at 0.03%.

@wealthrounded

Regarding the general MF vs ETF conversation, one aspect to consider is which one allows auto-investments. Some brokerages (e.g., Vanguard and Fidelity) allow you to auto-invest into both MFs and ETFs. Others don't (e.g., Schwab). You can double check me on that as it's more of a UX choice on the part of the brokerage and not something inherent to the investment vehicle.

Mutual funds trade after the trading day is done. ETFs can be traded at anytime the market is open. I prefer the ETF, but I hold both. You can check the expenses of both and see which one is lower, otherwise it doesn’t matter too much.

It used to be that mutual funds could be invested with x dollars at a time and shares had to be bought in whole units. Now, ETFs can be bought in partial shares.

Someone may have better insight why MFs are better, but I don’t think they are.

Another thing to keep in mind for taxable accounts is transferrability. ETFs currently trade for free at most brokerages while mutual funds often only trade free at the brokerage that manages the fund. Personally I use ETFs (VTI, VEA, VWO) becauses I started my journey with Betterment and that's what they invested me in, but it's nice to still be able to trade them now that I left for a different brokerage.

Why do so many FI investors prefer VTSAX over VTI?

The preference is most common among new investors who got started after reading JL Collins' book The Simple Path to Wealth and don't yet know these are in fact different share classes of the same fund.

Are ETFs noticeably more tax-efficient than index mutual funds in a taxable brokerage account?

Yes. Inside a taxable account it's more tax efficient to invest in ETFs. Here's a good primer. In my taxable account, I have an old mutual fund that is too large to sell off quickly. In one quarter last year, because of other shareholders' sales (not my own), I received a $13K in-fund capital gain that I had to pay tax on. Once I'm retired and living off my savings, this will be the fund I start with when selling shares to pay for living expenses so I can start shrinking that holding.

When it comes time to sell shares and withdraw money in retirement, does choosing an ETF versus a mutual fund actually make a difference?

It does in terms of when the trade is executed. ETF trades are executed immediately whereas mutual fund trades are executed once per day after close of market. With a mutual fund, you always want to buy or sell using limit orders to avoid being surprised by large price swings between the time you place an order and the time the order is executed. You can buy and sell ETFs with limit orders as well but significant price swings are less likely since trades are executed immediately.

For those investing through Schwab, would you choose SWTSX or SCHB, and why?

I don't invest at Schwab but the question of mutual fund versus ETF is relevant to any brokerage. If you're buying in a taxable account, go with an ETF for better tax efficiency. Tax efficiency is moot in pre-tax accounts but I still prefer ETFs to avoid trading delays. I only buy mutual funds inside my employer-sponsored retirement account and only because I'm forced to.

Take a look at SWTSX and SCHB on Morningstar to see that they're extremely similar in holdings, factors and performance. Their correlation over the past 15 years is 1.0 so their behavior has been essentially identical.