S&P 500 VFAIX (Mutual Fund) vs VOO (ETF)?

Question

I currently have just under $10,000 in a Vanguard Roth IRA brokerage account. So far I have purchased VOO ETFs since they have a lower expense ratio than VFINX. My next contribution will put me over $10,000 allowing me to purchase VFIAX. I am trying to decide whether it is worth it to convert over my VOO shares to VFAIX shares. My thoughts so far:

Both have exactly the same expense ratio 0.04% and should have almost exactly the same performance since they track the same index.

VOO

Pros:

• Already purchased/selling could be taxed (not sure if this applies with Roth IRA)

Cons:

• No automatic investment
• Have to buy whole shares (some dollar amount left over)
• Trading fees and commissions (not applicable since trading Vanguard ETFs is free with Vanguard account)
• Possibly risky due to liquidation (unlikely with ETF as big as VOO)

VFIAX:

Pros:

• Automatic investment
• Can invest all of my money (don't have to buy whole shares)

Cons:

• Possibly tax considerations (not sure if this applies with Roth IRA)

Are there any other major considerations I have left out? Also, are my assumptions in the list correct?

Answer 1

There are no taxes on transactions within an IRA (Traditional or Roth), so that's not something you need to consider. However, there are four other details I can think of that you should keep in mind:

• ETFs can be traded like stocks, with buy/sell market/limit/etc. orders at any point during trading hours. Mutual funds have their values recalculated only once a day, after market close, and all transactions for the day occur at that price. This could be a pro or con depending on your point of view—maybe you could save a few cents with a limit order; on the other hand, VFIAX may be less stressful in that respect as you don't even need to decide if you want a market or limit order (and what price).
• Most Vanguard mutual funds, including VFIAX, have frequent-trading restrictions. That means if you sell some VFIAX, you can't (easily) buy more of it for 30 days. There are ways around that restriction, however. ETFs do not have this limit. This policy is unlikely to affect you, but it's something to be aware of.
• Some mutual funds are subject to purchase and/or redemption fees. That means you will be charged to put money in or take money out. VFIAX doesn't have fund-specific fees, but Vanguard says "for no-transaction-fee funds, Vanguard Brokerage Services imposes a $50 redemption fee for all sales within 60 calendar days of the trade date of the most recent purchase." I interpret that as applying to VFIAX, so you'll want to be aware of that as well.