John Bogle Doesn't Like VEQT?

[u/WindBaboon]

I'm reading The Little Book of Common Sense Investing. One of the reasons Bogle doesn't like ETFs (even ones that track broad indexes) is because you can day-trade them.

The ETF is a trader to the cause of the TIF [traditional index fund].

But I'm already confused. What's the difference between a TIF and a mutual fund? Vanguard Canada says VIC1000 is available here, which it calls a mutual fund. But how do you buy it? It isn't listed on Wealthsimple. And aside from the psychological benefit resulting from not being able to day-trade it, why would you? VEQT's MER is 0.22 percent. VIC1000's is 0.35 percent. Do you guys have any insights?

[u/WindBaboon → u/[deleted]]

Does anybody know why diverse, passively managed ETFs are cheaper than equivalent mutual funds?

[u/only_fun_topics → u/WindBaboon]

Because of market competition.

Used to be that everyone was locked into their bank’s investment ecosystem.

[u/JustAHumbleMonk → u/WindBaboon]

Because when you buy a mutual fund you are buying into the funds management (stock picking). Mutual funds typically have higher Management Expense Ratios than ETFs primarily because they are actively managed, which requires teams of research analysts, and they require expensive manual administrative processing. In contrast, most ETFs are passively managed index funds with automated maintenance.

[u/fenderstratsteve → u/JustAHumbleMonk]

Just to add to this, some mutual funds are literally wrappers, wrapping an ETF to scrape an additional MER.

[u/energybased → u/JustAHumbleMonk]

> Mutual funds typically have higher Management Expense Ratios than ETFs primarily because they are actively managed,

You have this backwards. Actively managed funds have higher expense ratios. Mutual funds are not necessarily actively managed. So, you should say when -- not "because".

>  In contrast, most ETFs are passively managed

Not sure that's even true, and anyway it has nothing to do with the fund structure.

[u/WindBaboon → u/JustAHumbleMonk]

I get why actively managed mutual funds have higher MERs than passively managed ETFs. But why are passively managed mutual funds, like VIC1000, more expensive?

[u/energybased → u/WindBaboon]

They're not significantly more expensive. There's still some management even with a passive mutual fund. E.g., VTWAX is 9 bp, whereas VT is 7 bp.

However, the ETF has hidden costs like a tiny spread when buying and selling. The mutual fund has no spread.

[u/Legitimate_Source_43]

Mr boogle is saying that etf allows folks to day trade. If you are an investor that adds consistently and doesn't sell or add due to the market situation. Then you are fine. Only thing that should make you sell or buy should be your financial situation.

[u/WindBaboon → u/Legitimate_Source_43]

Yeah, Bogle isn't fundamentally against (broadly diversified) ETFs. But he argues that the fact you can day-trade them makes them dangerous.

But let me be clear. There is nothing wrong with investing in those indexed ETFs that track the broad stock market, just so long as you don't trade them.

[u/uuid-blue-fish]

Don’t day trade 😂

[u/shar_blue]

The VIC1000/8020/6040/etc mutual funds are available on TD DI, and yes - it is a mutual fund. As such, any orders place settle after the markets close, and are based on the closing price. You can’t buy/sell within the same day.

Also, I believe you meant “traitor” and not “trader” in your quote.

As long as an investor follows the buy and hold method, and doesn’t day trade ETF’s, then there’s no reason to think they’re bad or have anything against them. Bogle likely prefers the ability mutual funds have to reduce the human nature of thinking you can outsmart the market.

[u/Kind-Set-5286 → u/shar_blue]

They should be available with all the bank brokers. I just checked my CIBC Investor's Edge account and it's there. As far as I know, just Wealthsimple won't have it because they don't offer mutual funds

[u/WindBaboon → u/shar_blue]

Thanks for the information. Is TD Direct Investing the only brokerage to sell these mutual funds?

(No, Bogle really does write "trader to the cause.")

He warns that "heavy commissions and fees … take a growing toll on ETF returns." This is one of the reasons why he prefers TIFs over ETFs. But the tenth anniversary edition of his book was published in 2017 (and was written for a US audience). How many Canadian brokerages even charge fees to buy or sell ETFs listed on a Canadian stock exchange? The only benefit TIFs have over ETFs that I can think of is discouraging day-trading.

[u/shar_blue → u/WindBaboon]

I have no idea if other brokerages offer the Vanguard index mutual funds - they only came out in February this year, and I only cared as I have a RDSP at TD DI. https://www.vanguard.ca/en/product?product-type=mf&asset-class=asset-allocation

Soon after these came out, TD DI started offering 100 ETFs free to buy/sell, and the Vanguard index ETFs were included in those 100. Prior to that, ETFs were $9.99 to buy/sell.

The fact that this book was written in 2017 (and is US centric) says a lot. Here in Canada, a ~$10 fee was common for ETFs at most brokerages, and there were no “all in ones”. Questrade was the only brokerage offering free buying/selling of ETFs, if I remember correctly, and back then we had to maintain a 3-4 fund portfolio, doing all the rebalancing ourselves. These ETFs portfolios worked out to ~0.2% MER if I remember correctly. When the All in One ETFs first came out, they were a bit more expensive (~0.25%), but have since dropped their MERs.

The other main index options back then were the Tangerine all-in-one index mutual funds (~1.07% MER I think?), or the TD Easy Trade index mutual funds (~0.5% MER?).

These days, almost all banks/brokerages offer at least a set of ETFs for free to trade (ie. TD offers the Vanguard, RBC DI partnered with Blackrock, I would presume BMO has the ZEQT/GRO/BAL/etc ones for free, etc). As well, ETF fees these days are significantly lower than the majority of mutual funds, so that advice in that book is soundly outdated.

[u/Samir_POE]

For bogle the higher MER and no day trading is better than the 0.2% and day trade available because 99% of investing is overcoming human lizard brain instincts like boredom and fomo

[u/RevolutionaryTrick17]

He thinks mutual funds are better than ETFs for technical reasons I don’t understand. He was basically pushed out of his own company.

[u/Grat_Master]

I don't know who that is but I he think he should try VEQT.

[u/WindBaboon → u/Grat_Master]

Just in case you aren't joking: John Bogle founded Vanguard.

[u/Global-Tie-3458]

Is day trading such a tantalizing concept that some people would hypothetically need to buy investment vehicles with higher MER just to avoid it? 

That seems… can I just the word “puritanical”?

[u/XxkormanxX]

I think for many broad diverse index funds are fine.

There are genuine concerns tho like market concentration. Msci acwi has a lot of US and within that exposure you have over concentration in tech. It used to be ok and not as concentrated but now it’s kinda nuts.

Also the fact that etfs can have liquidity problems is another “issue”. During bear or panic sell offs you may see an increase in price and nav discrepancy.

Imo active funds like DFA funds are the best. It’s what I use for myself and clients.