A couple in their 30s who hit a seven-figure net worth primarily by investing in Vanguard index funds explain why they shifted to ETFs in 2024

Brennan and Erin Schlagbaum reside in Texas. They have two daughters.

Courtesy of Brennan and Erin Schlagbaum

Brennan and Erin Schlagbaum switched from index funds to ETFs in October 2024.Vanguard’s new automatic ETF investing prompted the conversion.The ETFs they switched to have a slightly lower expense ratio and may be more tax-efficient.

Brennan and Erin Schlagbaum built a seven-figure net worth by investing primarily in three Vanguard index funds.

For years, more than 95% of their stock-market money was in the Vanguard Total Stock Market Index Fund (VTSAX), the Vanguard Total International Stock Index Fund (VTIAX), and the Vanguard Emerging Markets Stock Index Fund (VEMAX).

In October 2024, the millennial couple said they moved 100% of their index funds to ETFs within all of their accounts in response to Vanguard rolling out automatic ETF investing, allowing investors to schedule recurring investments. Previously, Vanguard investors could not make automatic investments into or out of ETFs.

ETFs and index funds are similar — in fact, most ETFs are index funds — and can offer long-term returns, diversification, and cost savings thanks to low expense ratios. One key difference is how they’re traded: ETFs can be bought and sold throughout the trading day, while index funds can only be bought and sold once a day at the close of the trading day. ETFs also typically require a lower investment minimum. You can buy a Vanguard ETF for as little as $1, for example, whereas most Vanguard mutual funds have a $3,000 minimum.

It made sense for the Schlagbaums to switch to ETFs for two main reasons.

“The first is, the expense ratios on the actual funds themselves are slightly cheaper, so there’s a savings there,” Brennan told Business Insider, noting that it’s a very small difference.

Secondly, ETFs may offer tax savings when compared to index funds. ETF investors are taxed only when they sell the investment, while investors who own mutual funds — and index funds qualify as mutual funds — are liable for paying some capital gains taxes when a fund sells assets and realizes a gain.

“Given the nature of an index fund, this doesn’t really occur much,” noted Schlagbaum. “However, it can, and I’d like to eliminate it entirely if I had the choice.”

As for the actual conversion from index funds to ETFs, Schlagbaum’s experience was “super easy,” he said. “You can call Vanguard directly, and they can do it over the phone, or you can just go in the platform, and all you do is swap the funds for the same exact ETF. For example, our biggest holding — VTSAX — the equivalent ETF is VTI.”

The equivalent of their VTIAX holding is VXUS, and the equivalent of their VEMAX holding is VWO.

Notably, the conversion did not trigger a taxable event, he added: “Typically, if you’re in a taxable brokerage account and sold out VTSAX, you’d have to pay capital gains on that move. But because Vanguard rolled out fractional ETF shares as part of their roll-out, they basically shielded all taxes from any investors that make this move.”

Just because he’s putting his money into ETFs doesn’t mean his strategy is shifting. Schlagbaum is still playing the long-term, buy-and-hold game — and he’s not dismissing low-cost index-funds, by any means.

“If you stay in index funds, it’s not going to make or break you long-term,” he said. The way he sees it, the ETFs he converted to are very similar in terms of their holdings, just slightly more tax-efficient.

It’s difficult to quantify how much the move could save him in the future.

He said the difference in the expense ratio is “super minor.” VTSAX, for example, has an expense ratio of 0.04%, while its equivalent ETF, VTI, has one of 0.03%.

As for the capital gains aspect, “that’s very dependent year-to-year based on the manager that’s holding that fund and how they buy and sell and the transaction activity within that fund, so it’s impossible to calculate that.”

If he had to estimate, “Long term, I would say it’s probably a six-figure move, which isn’t that big over a 30- to 40-year period. But, it’s like, why wouldn’t you take it? It’s low-hanging fruit in my opinion.”