Fidelity or iShares for total stk market?

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zadie
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Fidelity or iShares for total stk market?

Post by zadie »

I have some money at Fideltiy, which provides better coverage for a total stock market investment (including small caps). Seems that iShares is the clear winner, unless I'm missing something?

Fidelity Spartan Total Market Index Fund (FSTMX) ER= 0.1%
or
ISHARES CORE S&P TOTAL US STOCK MARKET (ITOT) ER= .03%
biscuits222
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Re: Fidelity or iShares for total stk market?

Post by biscuits222 »

Recently ITOT seems to have been moved to an index that also covers small-caps. It now says it has over 3,800 holdings when in the past it seemed to have only 1,500:
https://www.ishares.com/us/products/239 ... market-etf

There is another option, which should include a legendarily-low tracking error as standard:

https://personal.vanguard.com/us/funds/ ... IntExt=INT
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Sammy_M
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Re: Fidelity or iShares for total stk market?

Post by Sammy_M »

iShares ETF if taxable. ETF is inherently more tax efficient. If you transfer brokerages you can move the ETF in-kind. I'm not certain whether that is the case with Fidelity Spartan funds. Maybe someone else can comment.

Probably iShares ETF for tax-advantaged accounts too is you're not getting the Spartan Advantage class (.05 ER).

Unless you are just lump sum investing and won't be adding or rebalancing, I personally see little reason to use an equivalent Vanguard fund at Fidelity if a commission free iShares Core ETF or Fidelity Spartan Advantage funds is available.
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Toons
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Re: Fidelity or iShares for total stk market?

Post by Toons »

Ishares for me. :happy
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IPer
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Re: Fidelity or iShares for total stk market?

Post by IPer »

If you are going to be buying some and adding to it periodically I would pick iShares ITOT, however,
I believe you should really understand what you are buying before you buy it:


If you haven't read these, don't buy it!!!

https://www.ishares.com/us/literature/p ... -en-us.pdf

https://www.ishares.com/us/literature/f ... -en-us.pdf

https://www.ishares.com/us/library/stre ... f-3-31.pdf
Read the Wiki Wiki !
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zadie
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Re: Fidelity or iShares for total stk market?

Post by zadie »

Iper, what's your point?
IPer
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Re: Fidelity or iShares for total stk market?

Post by IPer »

zadie wrote:Iper, what's your point?
My point is make sure you understand what you are buying. I see many folk on this board and it seems like they
take recommendations without so much as reading the prospectus of the product they buy and then a few years
later they still don't seem to understand it. The links I provided are the representation of what ITOT is comprised of.
Read the Wiki Wiki !
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retiredjg
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Re: Fidelity or iShares for total stk market?

Post by retiredjg »

According to Morningstar, the 9-style boxes are the same and the "growth of $10k" charts are almost indistinguishable. I don't see that either is a clear winner over the other.

Seems to me it boils down to whether you like mutual funds or ETFs better.
IPer
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Re: Fidelity or iShares for total stk market?

Post by IPer »

retiredjg wrote:According to Morningstar, the 9-style boxes are the same and the "growth of $10k" charts are almost indistinguishable. I don't see that either is a clear winner over the other.

Seems to me it boils down to whether you like mutual funds or ETFs better.
Yeah, I noticed that as well! The three differences I see between them:

1. Expense Ratios - .10 vs .03
2. Entry price - 2500 min vs one share
3. One is a Mutual Fund and the other an ETF

...it depends...
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s2kmw
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Re: Fidelity or iShares for total stk market?

Post by s2kmw »

IPer wrote:
retiredjg wrote:According to Morningstar, the 9-style boxes are the same and the "growth of $10k" charts are almost indistinguishable. I don't see that either is a clear winner over the other.

Seems to me it boils down to whether you like mutual funds or ETFs better.
Yeah, I noticed that as well! The three differences I see between them:

1. Expense Ratios - .10 vs .03
2. Entry price - 2500 min vs one share
3. One is a Mutual Fund and the other an ETF

...it depends...
does the leftover money from not being able to buy partial shares for ETFs make a significant difference since it's just sitting and not being put to work?
ChiefIlliniwek
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Re: Fidelity or iShares for total stk market?

Post by ChiefIlliniwek »

zadie wrote:I have some money at Fideltiy, which provides better coverage for a total stock market investment (including small caps). Seems that iShares is the clear winner, unless I'm missing something?

Fidelity Spartan Total Market Index Fund (FSTMX) ER= 0.1%
or
ISHARES CORE S&P TOTAL US STOCK MARKET (ITOT) ER= .03%
I have a small, 9k, Roth IRA at Fidelity and went through the same decision. In the end I went with FSTMX and will switch over to the Advantage fund, FSTVX, when I hit the 10k mark. I just think that mutual funds are easier to use than ETFs. I really don't think you can go wrong with either one, so just pick the one you are most comfortable with.
jfave33
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Re: Fidelity or iShares for total stk market?

Post by jfave33 »

If in taxable one thing to consider is the early redemption fee for FSTVX/FSTMX - 0.5% if you sell within 90 days. That can block your attempts to tax loss harvest or at least cost you more than using ITOT.
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Artsdoctor
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Re: Fidelity or iShares for total stk market?

Post by Artsdoctor »

retiredjg wrote:According to Morningstar, the 9-style boxes are the same and the "growth of $10k" charts are almost indistinguishable. I don't see that either is a clear winner over the other.

Seems to me it boils down to whether you like mutual funds or ETFs better.
From personal experience, I was surprised to see the tax burden for the Spartan Total Market Index fund was much greater than the Vanguard equivalent because capital gains distributions were declared at Fidelity and a small percentage of the dividends were not qualified. The wiki here describes how Vanguard can avoid some of those capital gains distributions.

If you take a look at the Spartan index fund and the iShares ETF, the return might be the same, but there were no capital gains distributions from the ETF:

https://www.ishares.com/us/products/239 ... market-etf

So if it's in a taxable account, you not only have to look at the returns on a pre-tax basis, but on a post-tax basis as well.
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retiredjg
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Re: Fidelity or iShares for total stk market?

Post by retiredjg »

Artsdoctor wrote:From personal experience, I was surprised to see the tax burden for the Spartan Total Market Index fund was much greater than the Vanguard equivalent because capital gains distributions were declared at Fidelity and a small percentage of the dividends were not qualified.
I think livesoft may have reported this as well. By "much greater" do you mean enough to want to change to an ETF or the Vanguard mutual fund?
jfave33
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Re: Fidelity or iShares for total stk market?

Post by jfave33 »

retiredjg wrote:
Artsdoctor wrote:From personal experience, I was surprised to see the tax burden for the Spartan Total Market Index fund was much greater than the Vanguard equivalent because capital gains distributions were declared at Fidelity and a small percentage of the dividends were not qualified.
I think livesoft may have reported this as well. By "much greater" do you mean enough to want to change to an ETF or the Vanguard mutual fund?
It was a distribution of about 0.5%.
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Re: Fidelity or iShares for total stk market?

Post by IPer »

s2kmw wrote: does the leftover money from not being able to buy partial shares for ETFs make a significant difference since it's just sitting and not being put to work?
No, I dumped mine in my Emergency Fund. Or maybe I bought food with it. Or I put it on my mutual fund side of the
portfolio. If you are speaking of a personal Roth or Traditional IRA then there might be a little cash sitting there but
really a couple hundred dollars sitting in cash isn't certainly going to hurt me. At any rate if I look at mine now there
is no cash sitting, especially since Vanguard consolidated Brokerage with Mutual Funds so any excess goes into
Mutual Funds, in both tax-deffered and taxable.
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Artsdoctor
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Re: Fidelity or iShares for total stk market?

Post by Artsdoctor »

retiredjg wrote:
Artsdoctor wrote:From personal experience, I was surprised to see the tax burden for the Spartan Total Market Index fund was much greater than the Vanguard equivalent because capital gains distributions were declared at Fidelity and a small percentage of the dividends were not qualified.
I think livesoft may have reported this as well. By "much greater" do you mean enough to want to change to an ETF or the Vanguard mutual fund?
Yes, as noted above, the capital gains distribution was slightly more than 0.5%.

Although there are tilters on the forum, I would imagine that a total stock market fund is one of the biggest holdings that people have. When you're essentially buying the exact same return with a total stock market fund or ETF (Fidelity, Schwab, Vanguard, iShares), to me it makes no sense whatsoever to pay a distribution if you don't have to. I own both both the Fidelity fund and the Vanguard fund with the bulk of shares being at Vanguard; if I would've had the same amount of money at Fidelity that I have at Vanguard for that one fund, my capital gains distribution would've been several thousand dollars. While I recognize that there are "costs of doing business," I can't imagine why someone would choose to invest in a product which is clearly less tax-efficient for really the same pre-tax return.
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Yesterdaysnews
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Re: Fidelity or iShares for total stk market?

Post by Yesterdaysnews »

I agree go exclusively with ETFs in taxable.
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Taylor Larimore
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ETFs or Mutual Funds?

Post by Taylor Larimore »

Yesterdaysnews wrote:I agree go exclusively with ETFs in taxable.
Yesterdaysnews:

Sorry, but it is not that simple. Both ETFs and Mutual Funds have advantages and disadvantages. For example, most Vanguard ETFs have no tax advantage over their corresponding Vanguard index funds.

Rick Ferri wrote The ETF Book and is considered an expert. This article gives Rick's opinion about whether to buy ETFs or Mutual Funds:

Richard Ferri on whether an investor should buy ETFs or mutual funds

Best wishes
Taylor
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Artsdoctor
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Re: ETFs or Mutual Funds?

Post by Artsdoctor »

Taylor Larimore wrote:
Yesterdaysnews wrote:I agree go exclusively with ETFs in taxable.
Yesterdaysnews:

Sorry, but it is not that simple. Both ETFs and Mutual Funds have advantages and disadvantages. For example, most Vanguard ETFs have no tax advantage over their corresponding Vanguard index funds.

Rick Ferri wrote The ETF Book and is considered an expert. This article gives Rick's opinion about whether to buy ETFs or Mutual Funds:

Richard Ferri on whether an investor should buy ETFs or mutual funds

Best wishes
Taylor
Agree. Vanguard ETFs and mutual funds are the same with regards to tax efficiency. You will not find Vanguard mutual funds declaring capital gains distributions and not doing so with their ETF counterparts.
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Sammy_M
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Re: Fidelity or iShares for total stk market?

Post by Sammy_M »

To the OP's question, the answer is simple. If taxable, buy the iShares Core ETF which has no transaction fees and reasonable bid-ask spread.
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zadie
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Re: Fidelity or iShares for total stk market?

Post by zadie »

Yes, taxable. Thank you.
RVdreamin
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Re: Fidelity or iShares for total stk market?

Post by RVdreamin »

Artsdoctor:
Hope I'm not hijacking this thread, I think I understand the basic differences between ETFs and MFs, but can you help me understand your point about the Fidelity fund being much more expensive after tax than its Vanguard counterpart please? Like you mentioned, FSTVX is by far one of my largest holding (and is my largest holding in my taxable account).
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Re: Fidelity or iShares for total stk market?

Post by swl »

Vanguard mitigates (not guaranteed to negate, but often does) the typical mutual fund capital gains exposure through their dual MF/ETF structure. Fidelity doesn't have that so will probably have more capital gains distributions on average. I'm not sure I would call it MUCH more expensive, though - it's still a low turnover index fund.
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Re: Fidelity or iShares for total stk market?

Post by Artsdoctor »

RVdreamin wrote:Artsdoctor:
Hope I'm not hijacking this thread, I think I understand the basic differences between ETFs and MFs, but can you help me understand your point about the Fidelity fund being much more expensive after tax than its Vanguard counterpart please? Like you mentioned, FSTVX is by far one of my largest holding (and is my largest holding in my taxable account).
RV,

So let's say that you've already decided to track the whole US equities market and you want to invest in a total stock market fund. You'll have a lot of choices and the performance will be decided, for the most part, on the expense ratio provided the fund manager is decent with representing the total market. If Fund A has an ER of 0.05% and Fund B has an ER of 1.05%, then you'll expect Fund B to return about one percentage point less than Fund A.

The next thing you'd look at is how much of that return stays in your pocket versus paid by you in taxes. "It's not how much you make, it's how much you keep" that matters. Let's say you've amassed $1M in your total stock market fund in your taxable account. Over the course of the year, it's paid out 2% in dividends to you. Your dividend income is $20,000 but the amount you pay will depend on how much of the dividend is qualified (which is taxed at capital gains rates) versus non-qualified (which is taxed at income tax rates). The higher the qualified dividend rate, the better for you.

Finally, the fund may also pay out capital gains distributions as well. If the ERs of two funds mirroring the total stock market are about the same, the return should be about the same. However, if fund A pays out 0.5% in capital gains distributions and fund B pays out no capital gains distributions, you will have a capital gains distribution of $5,000 declared from fund A. You've not made $5,000 more from fund A because that fund has only passed on its capital gains to you (and the NAV has been reduced accordingly).

Unless you have carryover losses to offset that (meaningless) capital gain distribution, you're on the hook for the taxes (for example, you might be expected to pay 15% in federal, 3.8% in investment tax, and 6% in state, or $1,240). Now remember that the NAV has been reduced by both the dividend and capital gains distributions so you've not made any money here. But your tax bill may be very different when comparing funds A and B. This is what happened with Fidelity Spartan Total Market Index ("Fund A") and Vanguard Total Stock Market Index ("Fund B").
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zadie
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Re: Fidelity or iShares for total stk market?

Post by zadie »

Learn something new every day! I wasn't aware of Vanguard's structure to help mitigate taxes. You'd think they'd use this as a competitive advantage to promote their fund/etf lineup.
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retiredjg
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Re: Fidelity or iShares for total stk market?

Post by retiredjg »

Very nice explanation, Artsdoctor. :happy
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Re: Fidelity or iShares for total stk market?

Post by RVdreamin »

I couldn't agree more with retiredjg...thanks for the explanation Artsdoctor!
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DueDiligence
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Re: Fidelity or iShares for total stk market?

Post by DueDiligence »

swl wrote:Vanguard mitigates (not guaranteed to negate, but often does) the typical mutual fund capital gains exposure through their dual MF/ETF structure. Fidelity doesn't have that so will probably have more capital gains distributions on average. I'm not sure I would call it MUCH more expensive, though - it's still a low turnover index fund.
Fidelity Spartan Total Market FSTVX is definitely less tax efficient than Vanguard Total Market VTSAX. Per Morningstar (thru Jan 31, 2016):

Pretax 10-year returns are 6.52% for Vanguard and 6.45% for Fidelity.
Tax-adjusted 10-yr returns are 6.06% for Vanguard and 5.71% for Fidelity (difference of 0.35% may be surprising?).
Morningstar assumes maximum ordinary tax rate for income, long capital gain rate of 15%, and no state taxes.

DueDiligence
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Re: Fidelity or iShares for total stk market?

Post by swl »

DueDiligence wrote:
swl wrote:Vanguard mitigates (not guaranteed to negate, but often does) the typical mutual fund capital gains exposure through their dual MF/ETF structure. Fidelity doesn't have that so will probably have more capital gains distributions on average. I'm not sure I would call it MUCH more expensive, though - it's still a low turnover index fund.
Fidelity Spartan Total Market FSTVX is definitely less tax efficient than Vanguard Total Market VTSAX. Per Morningstar (thru Jan 31, 2016):

Pretax 10-year returns are 6.52% for Vanguard and 6.45% for Fidelity.
Tax-adjusted 10-yr returns are 6.06% for Vanguard and 5.71% for Fidelity (difference of 0.35% may be surprising?).
Morningstar assumes maximum ordinary tax rate for income, long capital gain rate of 15%, and no state taxes.

DueDiligence
To be fair the Fido fund has only been in existence ten years and probably had a few big distributions as a young fund (fewer offsetting flows) that caused most of that. The delta has been shrinking year by year - this year was the first cap gains distribution in five years. The three years before that had distributions in the 1-5 bp range.

I figure that it's not a big deal either way since Fidelity is giving me 20+ bps for new contributions (though TDA is better for that right now - got 40 bp on my last contribution there).
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Re: Fidelity or iShares for total stk market?

Post by jfave33 »

Whilst it is obviously true that the Vanguard total stock is more tax efficient it doesn't mean that FSTVX is a bad fund. These capital gains distributions from FSTVX have been rare and the last one was 0.5% which is not big. If you had an objective choice between the two you'd pick the vanguard one if in a taxable account. However if you prefer investing in fidelity vs vanguard then really other factors may be more of an issue than a slight tax difference. It is not something I would lose sleep over. Also they track slightly different indexes with slightly different weights so that tiny tax difference could be wiped out if fidelity performs ever so slightly better going forward (unlikely :D ).
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DueDiligence
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Re: Fidelity or iShares for total stk market?

Post by DueDiligence »

swl wrote:
To be fair the Fido fund has only been in existence ten years and probably had a few big distributions as a young fund (fewer offsetting flows) that caused most of that. The delta has been shrinking year by year - this year was the first cap gains distribution in five years. The three years before that had distributions in the 1-5 bp range.
There is certainly uncertainty in estimating the Fido fund distributions. The Dec 2015 cap gain distribution of 0.5% following 4 years of no distribution indicates tax losses have been used up. Hard to estimate what future distributions might be - perhaps smaller or perhaps larger?.

Fido investors just need to be aware of this and consider iShares Total Mkt ITOT or Vang Total Mkt VTI as possible alternatives.

DueDiligence
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Artsdoctor
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Re: Fidelity or iShares for total stk market?

Post by Artsdoctor »

It's not just Fidelity, it's Schwab as well. I don't know about others.

These are not niche funds. Total Stock Market funds will probably make up the bulk of many people's taxable accounts and the all-in tax bill can be in the thousands because of that 0.5% distribution some people are trivializing. If that is the way it has to be, than we chalk it up to doing business. But without a concomitant capital gains distribution at Vanguard, it's really wasted money I'd rather spend on dinner out with people I care about. Fidelity (and Schwab) clearly were less tax efficient than Vanguard on this one.

What happens in 2016 is anyone's guess and only time will tell. The way the market's going, the capital gains distributions may go back into hiding.
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DueDiligence
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Re: Fidelity or iShares for total stk market?

Post by DueDiligence »

The Fido Tot Mkt FSTVX also had non-qualified dividends in 2014 and 2015, while Vang Tot Mkt VTSAX had only qualified dividends.
2014: 2.1% of FSTVX dividends were non-qualified.
2015: 2.5% of FSTVX dividends were non-qualified (most recent data from Fidelity).

Not sure why this is?
Maybe Fidelity is less focused on tax efficiency than Vanguard?

DueDiligence
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Re: Fidelity or iShares for total stk market?

Post by Theoretical »

Watch the spreads on ITOT. The last couple of days the spreads have been 10-30 cents while VTI at its worst was a 4 cent spread on a higher priced ETF.

If you are trading small amounts monthly, ITOT all the way, but if you have a large block to get, then look at VTI plus the $7.95 commission. Or do a mix.
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