Understanding investment types
More on ETFs
What's an ETF?
Are ETFs tax-efficient?
More on ETFs
Understanding investment types
More on ETFs
What's an ETF? Are ETFs tax-efficient?
An ETF (exchange-traded fund) is an investment that's built like a mutual fund—investing in potentially hundreds, sometimes thousands, of individual securities—but trades on an exchange throughout the day like a stock.
ETFs provide an opportunity to:
Diversify your holdings
Similar to index mutual funds, an ETF could contain hundreds—sometimes thousands—of stocks or bonds, spreading out your risk exposure compared to owning just a handful of individual stocks bonds.
Enjoy lower investment minimums
An ETF's minimum is the price of a single share, which could be as little as $50, depending on the ETF. A mutual fund may require $1,000, $3,000, or more to get started.*
Have more transparent pricing
ETFs provide real-time pricing, so you can see their prices change throughout the trading day. Mutual funds aren't priced until the trading day is over, so you don't know your price until after you've placed your trade.
Are there any tax advantages to owning an ETF?
Similar to conventional index mutual funds, most ETFs try to track an index, such as the S&P 500. An index ETF only buys and sells stocks when its benchmark index does. Big investment moves—like when a company is removed from the index completely—happen very rarely.
In addition, ETF managers can use capital losses to offset capital gains within the fund, further reducing (or possibly eliminating) the taxable capital gains that get passed on to fund shareholders at the end of each year.
Do ETFs have capital gains and dividend distributions? If so, can I reinvest them?
Just like mutual funds, ETFs distribute capital gains (usually in December each year) and dividends (monthly or quarterly, depending on the ETF). Even though capital gains forindexETFs are rare, you may face capital gains taxes even if you haven't sold any shares.
If you own your ETFs in a Vanguard Brokerage Account, you can reinvest capital gains and dividends.
Learn more about our brokerage reinvestment program
Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF Shares?
Yes. Most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—don't allow for conversions.)
Conversions are allowed from both Investor and Admiral™ Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.
Keep in mind that you can't convert ETF Shares back to conventional shares. If you decide in the future to sell your Vanguard ETF Shares and repurchase conventional shares, that transaction could be taxable.
If you have a brokerage account at Vanguard, there's no charge to convert conventional shares to ETF Shares. If you own your Vanguard mutual fund shares through another broker, keep in mind that some brokers may not be able to convert fractional shares, which could result in a modest taxable gain for you. Other brokers may also charge a fee for a conversion. Contact your broker for more information.
Can I buy ETFs from other companies through Vanguard?
Yes. All Vanguard clients have access to ETFs and mutual funds from other companies, as well as individual stocks, bonds, and CDs (certificates of deposit). And you'll pay $0 commission to trade ETFs and stocks online.
An ETF (exchange-traded fund) is an investment that's built like a mutual fund—investing in potentially hundreds, sometimes thousands, of individual securities—but trades on an exchange throughout the day like a stock.
Similar to index mutual funds, an ETF could contain hundreds—sometimes thousands—of stocks or bonds, spreading out your risk exposure compared to owning just a handful of individual stocks bonds.
An ETF's minimum is the price of a single share, which could be as little as $50, depending on the ETF. A mutual fund may require $1,000, $3,000, or more to get started.*
ETFs provide real-time pricing, so you can see their prices change throughout the trading day. Mutual funds aren’t priced until the trading day is over, so you don't know your price until after you've placed your trade.
Similar to conventional index mutual funds, most ETFs try to track an index, such as the S&P 500. An index ETF only buys and sells stocks when its benchmark index does. Big investment moves—like when a company is removed from the index completely—happen very rarely.
In addition, ETF managers can use capital losses to offset capital gains within the fund, further reducing (or possibly eliminating) the taxable capital gains that get passed on to fund shareholders at the end of each year.
Just like mutual funds, ETFs distribute capital gains (usually in December each year) and dividends (monthly or quarterly, depending on the ETF). Even though capital gains forindexETFs are rare, you may face capital gains taxes even if you haven't sold any shares.
If you own your ETFs in a Vanguard Brokerage Account, you can reinvest capital gains and dividends.
Learn more about our brokerage reinvestment program
Yes. Most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—don't allow for conversions.)
Conversions are allowed from both Investor and Admiral™ Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.
Keep in mind that you can't convert ETF Shares back to conventional shares. If you decide in the future to sell your Vanguard ETF Shares and repurchase conventional shares, that transaction could be taxable.
If you have a brokerage account at Vanguard, there's no charge to convert conventional shares to ETF Shares. If you own your Vanguard mutual fund shares through another broker, keep in mind that some brokers may not be able to convert fractional shares, which could result in a modest taxable gain for you. Other brokers may also charge a fee for a conversion. Contact your broker for more information.
Yes. All Vanguard clients have access to ETFs and mutual funds from other companies, as well as individual stocks, bonds, and CDs (certificates of deposit). And you'll pay $0 commission to trade ETFs and stocks online.
