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Interesting that Jaffe uses Vanguard to extol the virtues of ETFs. (Never mind Bogle's thoughts on ETFs, that's not where I'm going.)
With the exception of a few cost leaders — mostly institutional funds requiring big holdings — ETFs are dramatically cheaper than traditional funds covering the same indexes.
Vanguard index funds are the exception that proves the rule - for a $10K min - not institutional, and not an outrageous amount - Vanguard's Admiral shares generally carry the same expense ratio as their ETF shares. S&P 500 - 0.05%, FTSE All World ex-US - 0.18%, Extended Market - 0.14%, Total Bond - 0.10%, Total Stock - 0.06%, etc.. And because these are just two different share classes of the same funds, the reduction in costs that Jaffe is lauding on Vanguard's ETFs will show up in the Admiral shares also.
The one advantage traditional funds have is that an investor can dollar-cost average into the fund without paying repeated commissions, but no-transaction-fee ETFs offset this advantage.
This means that Admiral shares are only somewhat less expensive to buy and sell - you get them at NAV, rather than getting penalized by a bid/ask spread whenever you buy or sell, as you would with an ETF.
Index ETFs have a slight edge in tax efficiency over traditional index funds too.
Obviously not true for two shares classes (Admiral, ETF) of the same portfolio. Dividends and capital gains get distributed pro-rata to all shares, whether they are ETF class or other class.
There are other differences between ETF class shares and Admiral class shares, but they're not ones that Jaffe chose to discuss. He's focusing on costs.
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There are other differences between ETF class shares and Admiral class shares, but they're not ones that Jaffe chose to discuss. He's focusing on costs.