Last month I received an e-mail from TD Ameritrade saying they were eliminating commission free ETFs. A lot of my friends and family have IRAs and 401Ks with TD and invest there. More importantly, everyone has a Vanguard Total Stock Market Fund. Whether VTI or VTSAX. I felt it was my duty to determine how this affected us.
In addition, many of us invests in a number of other Vanguard funds too: VTI, VB, VOO, etc.
No More Commission-Free Vanguard ETFs
“Dear Valued Client,
We’re happy to announce that we are expanding our commission-free exchange-traded funds (ETFs) trading program, nearly tripling the number of available commission-free funds to 296. Since you’re currently enrolled in the commission-free ETF trading program, we want to be sure you have all the details so you can determine how these changes can meet your investing needs.”
After logging into TD, I opened up the list of commission-free ETFs to look for Vanguard. Sure enough, TD has removed all Vanguard funds from the list.
Now I remember that Fidelity and iShares also have similar ETFs which also carry a competitive low expense ratio of 0.04%. TD’s ETF list also had them removed. I realized it was time to jump ship. I had remembered hearing that Vanguard offers commission-free trades for all Vanguard products. This includes VTI and VTSAX.
Commission-Free Vanguard Products at Vanguard
Since I wanted to stay invested within the Vanguard family of funds, I decided to open up an account directly with Vanguard. On their site, they offer free account transfers which made it very easy to transfer all my assets from TD Ameritrade over to Vanguard. The process involves filling out a form, printing it, signing it, and mailing it in. Within 2-3 weeks, the account transfer completes and you can access your Vanguard account online.
VTI vs VTSAX
This brings me to the thesis of my post. On TD, I used to be invested in an ETF called VTI. This ETF tracked the entire US stock market. This included large cap, mid cap, and small cap companies. However, the problem with this was that ETFs are usually purchased in whole quantities. Which means if VTI is trading for $130 and you have $200 to invest, then you’ll be leaving $70 sitting there. The solution to this was to convert from an ETF to a mutual fund, where you can fully invest 100% of your cash.
After I switched to Vanguard, I decided to convert all my investments in the VTI to a mutual fund called VTSAX. These two financial products, VTI and VTSAX, are essentially the same thing, with the same 0.04% expense ratio. There is 1 mechanical difference: VTI is an ETF and VTSAX is a mutual fund.
ETFs vs Mutual Funds
- Mutual funds fill at the end of the day. On the other hand, ETFs trade only during market hours.
- Mutual funds have a minimum amount that’s required to invest. With VTSAX, the minimum is $3,000.
- Mutual funds will invest 100% of your case so you don’t have the problem with having $70 sitting around leftover.
In conclusion, all my IRA accounts are in Vanguard from TD. All the VTI holdings are now VTSAX. For those who want other options, Fidelity and iShares also have very similar products with an expense ratio of 0.04%. It looks like Fidelity is stepping up their game trying to compete with VTSAX. It’s difficult to pinpoint why TD decided to eradicate the Vanguard funds off their list of commission-free ETFs. However, as with any other business decision, we can be sure it’s all about the money.