Brokerages can front you the money to buy while your ACH transfer is being processed. Robinhood calls it Instant Deposits, but I believe others offer the service too for free.
What's the relationship here between EFI, mutual funds, and "margin account/higher expense ratio"? Would anyone be willing to explain this comment thread to a newbie?
In this thread, one person is saying they prefer MFs because they don't have to wait for an ACH transfer to complete, the other person is telling them to buy ETFs with a margin account (that is, using credit), because — as I interpret them — the cheaper ETF would be worth the interest on the margin.
But in this case, it's nonsensical if you're comparing VTSAX (0.04%/year expense ratio) and VTI (0.03%). If you have $10m in your account, the difference is $1k per year.
Often, ETFs have lower expense ratios because they are cheaper to manage; historically, mutual funds have had high fees, even for passively managed funds, and Vanguard is one of the companies that have worked to bring the fees down. But it's not always true that MFs are more expensive. VTSAX's ER is 0.04%; its ETF equivalent, VTI, is 0.03%. The difference is effectively zero.
I mean, many brokerages will extend margin for free during ACH transfer (or any settlement event for that matter). So using a margin account and buying the ETF will save you one basis point in fees every year. If you have a 30 year horizon it becomes ~20-30 basis points depending on contribution+return schedule. 20-30k on 10mm is not super much but not negligible either since it takes no effort.
TDAmeritrade will extend no interest margin for transfers iirc. I haven’t looked at robinhood in a while, but I believe they will extend instant deposit beyond $1k. I remember I had maybe 70k with them a year ago and my instant deposit was 50k. It still has to be no greater than max marginable value (so you can’t do it on a fresh account).
