Commissions for buying ETF/fund/stocks (twice, buy and sell)
Spreads for buying ETF/stocks (once, or half when bought and half when sold if you prefer)
ER for holding a fund/ETF (annually)
Turnover costs of fund/ETF(?) (annually)
Securities lending revenue (annually)
Tax loss harvesting opportunities (ongoing)
VFIAX - Vanguard S&P500 Fund, Admiral Class
Commission: $0 at Vanguard
ER: 0.05%
Turnover: 3.4% annually, so 0.034% estimated trading costs (1)
Spreads: none
Securities lending: 3.23% of fund ER, so 0.0016% benefit (5)
TLH: very limited (4)
Total costs: 0.0824% (each year)
Vanguards S&P500 ETF, VOO
Commission: $0 at Vanguard
ER: 0.05%
Turnover: none (I think these costs are offloaded to the APs for an ETF)
Spreads: 0.01% (6)
Securities lending: not allowed for this ETF, I think (5)
TLH: very limited (4)
Total costs: 0.01% fixed and 0.05%/year
The 500 stocks via Motif Investing
Commissions: 17 Motifs with 30 stocks each (510, the "500" has 503 last I checked). $169.15 to buy, same to sell. $338.30 total.
ER: none
Turnover: none (3)
Spreads: 0.032% (2)
Securities lending: none
TLH: very high (4)
Total round trip costs: 0.032% + $338.30 (all fixed)
So let's say you have $100k to invest in a large cap fund for the next 10 years and then you'll sell everything. Assume further that the stock market appreciates at a 7% annual return. Your total costs before TLH benefits for various time frames are:
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Future Value
years fund etf stocks free
5 $139,716 $139,914 $139,804 $140,255
10 $195,205 $195,778 $196,182 $196,715
20 $381,052 $383,330 $386,083 $386,968
30 $743,834 $750,551 $759,647 $761,226
Costs (in future dollars)
years fund etf stocks free
5 ($539) ($341) ($451) $0
10 ($1,510) ($937) ($533) $0
20 ($5,917) ($3,639) ($886) $0
30 ($17,391) ($10,674) ($1,578) $0
Costs relative to holding stocks (% of future value)
years fund etf stocks
5 -0.06% +0.08% 0.00%
10 -0.50% -0.21% 0.00%
20 -1.32% -0.72% 0.00%
30 -2.13% -1.21% 0.00%
Annual % savings with stocks (= costs difference as % of future value / years)
years fund etf stocks
5 -0.01% +0.02% 0.00%
10 -0.05% -0.02% 0.00%
20 -0.07% -0.04% 0.00%
30 -0.07% -0.04% 0.00%
Present Value of Annual $ Savings ( = future cost difference / years, discounted at 7% rate)
years fund etf stocks
5 ($12.55) $15.66 $0.00
10 ($49.63) ($20.52) $0.00
20 ($65.01) ($35.58) $0.00
30 ($69.24) ($39.83) $0.00
Remember too that TLH benefits are much, much higher when you hold individual stocks rather than a single investment vehicle that holds them all. I would not be surprised if that was a big wildcard that makes Motif far superior, but I'm not going to attempt to quantify that.
More generally, I'd like to discuss any cost or benefit factors I may have overlooked, as well as practical aspects to implementing this approach to index investing. For example, with less than $100k, one could hold smaller amounts invested in an S&P fund or ETF, and, if that had not appreciated too much, sell it and switch to a Motif approach once the accumulated savings got large enough to justify the fixed costs to switch.