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My understanding of Vanguard "Admiral Funds" is that they charge lower management fees (have lower expense ratios) in exchange for there being a minimum investment amount.

However, it seems that currently in some cases the Admiral Funds version of a fund actually has a higher expense ratio than its investment fund counterpart. For example, Vanguard 500 Index Fund Admiral Shares (VFIAX) has an expense ratio of 0.04% whereas Vanguard S&P 500 ETF (VOO) has an expense ratio of 0.03%. The former is a mutual fund and the latter is an ETF. But, the only real other difference between the two as far as I can tell is the $3000 minimum investment needed for the former.

So, what am I missing? With the current expense ratios why would one ever want to buy VFIAX over VOO? (Note: from here it looks like they used to have the same expense ratio.)

user112615
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1 Answers1

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At one time for the individual investor, there were two types of each fund.

  • A low cost mutual fund.
  • An even lower cost Admiral shares version of the fund with a higher minimum.

When I started investing in their funds, your needed $10,000 in the fund to be upgraded to Admiral shares. The biggest difference besides the higher minimum is that you had a lower expense ratio.

Eventually a 3rd option was created, an ETF.

A few years ago the two mutual fund options were consolidated. Now The admiral shares have a much lower minimum of $3,000.

With the current expense ratios why would one ever want to buy VFIAX over VOO?

It depends. Do you want an ETF or a mutual fund. I prefer mutual funds. I don't trade funds. I have re-balanced over the years. I have sold and bought shares when I left companies and moved the investments from a 401(k) into IRAs. I have purchased more shares over the years. I have reinvested my dividends. Never once have I had to buy or sell an integer number of shares.

If I have $1,000,000 in the S&P 500 fund, the annual difference in the two expenses rations is:

 0.04% x $1,000,000 or $400

vs.

 0.03% x $1,000,000 or $300

for a delta of $100.

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