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If forced to use Fidelity as a brokerage I would prefer iShares; however, I would prefer to not use Fidelity. I do most of my investing in non-retirement accoun

If forced to use Fidelity as a brokerage I would prefer iShares; however, I would prefer to not use Fidelity. I do most of my investing in non-retirement accounts and as a result tax efficiency is a concern. For this, ETFs (by any provider) and Vanguard mutual funds are typically superior to straight index mutual funds. The reason Vanguard mutual funds are unique in this respect is that they hold a patent allowed assets to be comingled between their ETF and mutual fund share classes, so the superior tax efficiency aspects of the ETF can be shared with the mutual fund (and vice versa). Also, Vanguard as a corporation is owned by its fund shareholders as opposed to external shareholders while Fidelity is owned by a private group. I don't trust any company enough to lock up my money with them and possibly have to pay capital gains tax to switch later, if they decide to raise fees or make the investment not align with shareholders in some respect. As whitepoplar says, they're a profit-seeking entity. Due to the inverted corporate ownership structure of Vanguard this is not a concern. This argument also applies to iShares.

komali2 8y ago
>The reason Vanguard mutual funds are unique in this respect is that they hold a patent allowed assets to be comingled between their ETF and mutual fund share classes, so the superior tax efficiency aspects of the ETF can be shared with the mutual fund (and vice versa). Wait, what? What does this actually look like for you on your taxes? This sounds like something that would be out of your hands/tax responsibility.
- tanderson92 8y ago
  The way this shows up on your taxes is that Vanguard stock mutual funds (almost) never make capital gains distributions, while other mutual fund companies do. Capital gains distributions are taxed, and are inefficient as they cost you money.
- zrail 8y ago
  Most of Vanaguard's ETFs are just another class of the overall mutual fund. So for example, the Vanguard Total Stock Market Index Fund has four (I think) share classes: Investor, Admiral, Institutional, and ETF. Vanguard arranges things such that shares of stock in the underlying fund that have lots of built-in gains are shoved into ETF shares, which means they don't have to sell them when people redeem shares of the mutual fund classes. tl;dr: basically they just never have to sell shares with built-in capital gains so you rarely see a capital gains distribution when you use Vanguard index funds.

komali2 8y ago

>The reason Vanguard mutual funds are unique in this respect is that they hold a patent allowed assets to be comingled between their ETF and mutual fund share classes, so the superior tax efficiency aspects of the ETF can be shared with the mutual fund (and vice versa). Wait, what? What does this actually look like for you on your taxes? This sounds like something that would be out of your hands/tax responsibility.

tanderson92 8y ago
The way this shows up on your taxes is that Vanguard stock mutual funds (almost) never make capital gains distributions, while other mutual fund companies do. Capital gains distributions are taxed, and are inefficient as they cost you money.
zrail 8y ago
Most of Vanaguard's ETFs are just another class of the overall mutual fund. So for example, the Vanguard Total Stock Market Index Fund has four (I think) share classes: Investor, Admiral, Institutional, and ETF. Vanguard arranges things such that shares of stock in the underlying fund that have lots of built-in gains are shoved into ETF shares, which means they don't have to sell them when people redeem shares of the mutual fund classes. tl;dr: basically they just never have to sell shares with built-in capital gains so you rarely see a capital gains distribution when you use Vanguard index funds.