The bottom line for converting to the ETF version of equivalent mutual funds: lower costs = greater returns = more money. To illustrate this, I ran over to Mornginstar.com and compared the 5-year returns for VEIEX and VWO, the mutual fund and ETF versions of the Vanguard Emerging Markets Index Fund, respectively. Here’s the growth chart of $10,000 invested from 6/24/2005 to 6/24/2010 (click to enlarge):
Looks pretty much the same, right? That’s because they hold the same stocks inside, but VWO has a lower cost through its lower annual expense ratio. That initial $10,000 would have ended up as $18,086.98 invested in VEIEX, while it would have become $18,374.63 invested in VWO – a difference of $287.65. Not a huge difference, but significant in my book, considering it required no increase in risk.
This comparison also doesn’t take into the additional 0.5% purchase fees and 0.25% redemption fees charged by VEIEX when buying and selling shares, although the hit does become less significant as your holding period lengthens.
By Jonathan Ping | Investing | 6/24/10, 5:57pm