How crucial are Admiral shares?

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How crucial are Admiral shares?

Post by rudeboy » Tue Jan 09, 2018 8:57 pm

I'm a small business owner looking to set up a solo 401k. All of my investments are currently with Vanguard and I'd love to keep everything there due to cost and also some degree of 'brand loyalty' (which may be foolish). However, Vanguard doesn't allow for admiral shares (or ETFs) in their solo 401ks.

The best alternative seems to be Fidelity, though the require you to mail in a check every time you want to contribute. Knowing my faults, I fear this very small obstacle might cause me to invest less often.

Other providers such as E*TRADE seem to give me a bit more freedom than I can handle right now. I'm not the most financially savvy (working on it), but in the meantime, I want to move forward with investing.

Basically, I think I'm looking for confirmation that a Vanguard solo 401k (without admiral shares) is still worth it for the convenience of having everything in one spot. Though I'm open to being talked out of it...

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Re: How crucial are Admiral shares?

Post by Silk McCue » Tue Jan 09, 2018 9:12 pm

The Investor class shares are still dirt cheap in the scheme of things. For the S&P500 fund the additional cost would be $100 per $100k invested annually. I could live with that in your described circumstances.

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Re: How crucial are Admiral shares?

Post by dbr » Tue Jan 09, 2018 9:20 pm

The importance of cost is a matter of diminishing returns. By the point where one is considering the difference between Admiral Shares and Investor Shares the differences have diminished to almost nothing. If the issue is investing at a broker where costs range to 2% or more the difference between that and any Vanguard investment is huge.

If you want to quantify the issue you could compute the future value of some investment at some rate of return and then diminish that return by the difference in whatever example you want to test.

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Re: How crucial are Admiral shares?

Post by spdoublebass » Tue Jan 09, 2018 9:25 pm

Search the forum for pros/cons of each provider for solo/individual 401K's. There are many threads.
Every person has a different situation, so keep that in mind.

Vanguard offers a Roth Solo 401K option that others do not...but again, for some people they have no need for this option.

I went with Vanguard for convenience. The investor share class doesn't bother me, but the $20 per fund does. This gets waived at a certain point when you reach a certain amount.

I do not own a business, I use it for my schedule C income, which is usually daily/weekly checks. So I like to be able to cash them and instantly deposit a certain percentage into the account.

Look at the other posts though in the forum and figure out what matters to you. I think If I remember correctly I would have went with Fidelity If I didn't pick vanguard.

Resist much, obey little.

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Re: How crucial are Admiral shares?

Post by rudeboy » Tue Jan 09, 2018 10:51 pm

Thank you guys, I appreciate the feedback.

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Re: How crucial are Admiral shares?

Post by JBTX » Tue Jan 09, 2018 11:13 pm

I have Vanguard solo 401k. Investor fees are something like 0.1% higher than admiral. That is pretty nominal. They have Roth option also. If it’s only going to be you and you won’t be rolling any money from other rollover IRAs it should be fine. It is less flexible than other solo 401ks if you wish to do those things.

Are you sure about fidelity requiring a check? I find that hard to believe. They typically are very high on customer service.

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Re: How crucial are Admiral shares?

Post by TD2626 » Wed Jan 10, 2018 12:41 am

The nice thing is that this can be in theory partially quantified - one could calculate exactly how much in excess fees are being paid, and compound this effect out for many years. I believe a lot of the issue with fees comes from compounding - e.g. the fact that you'd hope to earn money on the money that was saved in fees in the first years in all subsequent years eventually adds up.

It's ultimately a "is this a cost worth paying" question. (Any behavioral phenomenon are also important, and should be taken into account - but are probably harder to quantify).

One could compare the effect like this, for example: ... ion2_2=100

This is a hypothetical example backtest showing the Vanguard S&P 500 funds, admiral and investor, over 10 years - simulating the effect of a small added fee drag. One could probably also do similar backtests/calculations for other funds (like bond funds or Total Market funds) or using different starting values other than the default $10k.

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