• 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."

• Andre Nader sold his Austin rental due to stress outweighing financial benefits.
• He and his wife, who moved to SF in 2014, have found renting to be more cost-effective than owning.
• Nader says he doesn't need to own real estate to hit his FIRE goals and focuses on index fund investing.

Andre Nader has been both a homeowner and a landlord — and neither are for him, at least at this moment in time.

Shortly after getting married in 2012, he and his wife bought a home in Austin. When they moved to San Francisco in 2014 for a job Nader landed with Facebook, they kept it as a rental rather than selling. Their original plan was to move back to Texas.

Nader decided to self-manage the rental from nearly 2,000 miles away, which he did for a year and a half. When his tenant gave notice to move out and Nader flew back to Austin to deal with the turnover, he was surprised with what he found.

"The place was just kind of trashed," he told Business Insider. "It needed all-new carpet. It needed a lot of work."

While the extra income had been nice — he said the property generated a cash flow of a couple of hundred dollars a month — ultimately, it wasn't worth it.

"The stress and the mental overhead were drastically outweighing any of the short-term financial benefits," said Nader, who decided to sell rather than find a new tenant. Plus, he and his wife, who had started working as a designer at Uber, were enjoying the Bay Area and found themselves pushing out their timeline. "I was never convinced we would stay in San Francisco for the long term, but I became more and more confident that we wouldn't be immediately back to Austin."

Choosing to rent to save on housing in SF and leaning into index fund investing

Nader, 37, has been pursuing FIRE (financial independence, retirement early) since his 20s. He and his wife have always lived below their means, and for years, they kept their expenses low enough so that just one of their tech incomes could cover all of their household expenses, allowing them to invest about half of their combined income.

When they moved to the Bay Area, renting made sense from a budget perspective: It was cheaper for them to rent in the pricey city — and it still is, said Nader: "Right now, San Francisco really favors renting. It's really hard from a pure numbers standpoint to make owning make sense."

There are exceptions, he noted: "Particularly in a place like San Francisco, a lot of the math can change with the appreciation of property values. If housing prices continue to increase, then maybe buying can come out, but if you take conservative approaches to any future increases in housing, renting just ends up making a lot more sense mathematically."

Plus, Nader was never convinced he and his family would stay in San Francisco long enough to make buying worth it.

"The Goldilocks timeline has historically been, five to seven years is when buying starts being more advantageous than renting," he said. "Now when I do the numbers, it's even longer — closer to the 10-year timeframe — and I'd never been confident that I would be in San Francisco that long."

While prudent real estate investing is a viable path to wealth, Nader doesn't believe he needs to own property to hit his financial goals.

His investment strategy revolves around low-cost index funds. He owns various Fidelity and Vanguard index funds, including Vanguard Total Stock Market Index Fund ETF Shares (VTI) and Vanguard Total International Stock Index Fund ETF Shares (VXUS).

Nader describes the strategy as "super boring," but it's effective: It's helped him build a seven-figure net worth, which BI verified by looking at a copy of his investment report.

It's not lost on him that bringing in two tech incomes was a major advantage.

"I won the income game by being in tech, by being a dual-income household. I didn't need to be taking these outsized risks by investing in extremely speculative ways. I could be boring in my portfolio," said Nader, who worked at Meta for nine years before he was affected by the company's 2023 layoffs.

He and his wife had enough between their savings and one tech income that he didn't have to find another job, but he says he'll consider himself "semi-FIRE'd" until his wife also walks away from her job.

Nader, who spends his days writing on Substack and doing one-on-one financial independence coaching, says his investment strategy has remained the same since the layoff. He likes the hands-off approach to index fund investing, especially after experiencing what it's like to own real estate.

When he was managing the Austin rental, "I kind of quickly realized that the promise of real estate being a clearly passive investment, even if you have property managers, wasn't something that, for me, proved to be true, so it further reinforced my view around focusing on super boring, low-fee index funds," he said. "I could have a few hundred thousand dollars in real estate and maybe a million dollars in index funds, but I would be thinking about the real estate three times as much, so it would be a disproportionate amount of mental exercise, at least for me."