vanguard funds vs others what makes vanguard better

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cosmos
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vanguard funds vs others what makes vanguard better

Post by cosmos » Thu Oct 16, 2008 4:19 pm

comparing similar funds like VTSMX and SWEGX from charles schwab, what makes investing in one fund better than the other when they follow the same path?

im trying to figure out if the strategy bogle outlines is only applicable to vanguard funds themselves or if one is currently with another broker like schwab can they be applied to the noload/nofee funds they offer?

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CABob
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Post by CABob » Thu Oct 16, 2008 5:12 pm

I'm not familiar with the Schwab fund, but, it appears that it is a fund of funds and is managed while the Vanguard fund is an index fund. I think the expense ratio is much lower with the Vanguard fund. Expenses are one of most important factors to consider in selecting a fund.

Bob

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cosmos
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Post by cosmos » Thu Oct 16, 2008 5:23 pm

CABob wrote:I'm not familiar with the Schwab fund, but, it appears that it is a fund of funds and is managed while the Vanguard fund is an index fund. I think the expense ratio is much lower with the Vanguard fund. Expenses are one of most important factors to consider in selecting a fund.

Bob
i think i got the wrong schwab fund, i believe their version is SWTIX, schwab total index. so im wondering if i should open a vanguard account in addition as i dont want to move all my schwab stuff at this point but dont want to get charged by schwab to invest in vanguard funds.

thanks for the pointer

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Post by DSInvestor » Thu Oct 16, 2008 5:25 pm

VTSMX - Vanguard total Stock Market Index mirrors MSCI US Broad market index and has expense ratio of 0.15%

SWEGX - Market Track All Equity has three components S&P500, International index and Small Cap Index and thus is not a good match against VTSMX.

SWTIX - Schwab total Stock market Index is a better match and has expense ratio of 0.52%

When comparing two funds that track the same index, the fund with the lower expense ratio will likely come out ahead. In the indexing game, Vanguard is the leader and low cost provider. You can compare the annual returns of SWTIX against VTSMX. The difference in expense ratios is around 0.37% and I suspect that the difference in annual returns may be around the same. When compounded over a long investment time horizon, it adds up.

Vanguard has a fund cost comparison tool.

https://personal.vanguard.com/us/funds/other
then click on compare fund costs.

However Vanguard's funds are best held in vanguard accounts because they're not available as NTF funds at other brokerage houses. For example if I wanted to buy VTSMX at fidelity, it would cost me $75 per transaction. Investors at other houses can purchase Vanguard's Total Stock Market ETF (VTI) for the std brokerage commission which should be less than the fund network transaction fee.

DS

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Post by DSInvestor » Thu Oct 16, 2008 5:39 pm

cosmos wrote:so im wondering if i should open a vanguard account in addition as i dont want to move all my schwab stuff at this point but dont want to get charged by schwab to invest in vanguard funds.

thanks for the pointer
Vanguard Total Stock Market has four share classes
VTSMX - investor shares er=0.15%
VTSAX - Admiral share er=0.07% requires 100K investment.
VITSX - Institutional shares er=0.05% requires $5M investment.
VTI - ETF shares er= 0.07%accessible from any brokerage acct.

Vanguard bond index funds are also excellent with very low expenses.

VTI may be an option for if you don't mind paying brokerage commissions and losing the dollar cost averaging feature. ETFs have bid/ask spread and may trade at premium/discount to NAV.

DS

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CyberBob
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Re: vanguard funds vs others what makes vanguard better

Post by CyberBob » Fri Oct 17, 2008 12:21 pm

cosmos wrote:...what makes investing in one fund better than the other when they follow the same path?
Someone asked in another post what makes a good index fund. I'll answer your question with the same list. Vanguard simply does these things more consistenly well than anyone else.
  • Expenses - lower is better. Don't be fooled by temporary expense waivers, and certainly never buy an index fund with a sales load. Not only are Vanguard's expenses low, but they have a history of consistently lowering them even further. And Admiral Shares are even cheaper.
  • Index tracking - a theoretically perfect index fund should track its index exactly, trailing it only by the expense ratio of the fund. One thing to look out for is poor index replication. I once saw an S&P 500 index fund that only owned 90 of the 500 stocks, which certainly opens the door for possibly poor tracking of the index. When it comes to index tracking, Vanguard is very consistent.
  • Fully invested - I've also seen index funds that were 20% or more in cash. Not being fully invested in the index the fund is supposed to track will result in tracking deviation.
Bob

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nisiprius
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Re: vanguard funds vs others what makes vanguard better

Post by nisiprius » Fri Oct 17, 2008 12:41 pm

CyberBob wrote:Don't be fooled by temporary expense waivers...
Is this a problem if a) you are aware of it, b) are reasonably prepared to jump ship if and when they stop waiving it, and c) are keeping an eye on the ER?

Is there more of an issue here than inertia?

"Temporary" seems to be very long for e.g. the Fidelity Spartan Funds.
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Re: vanguard funds vs others what makes vanguard better

Post by mas » Fri Oct 17, 2008 1:02 pm

nisiprius wrote:
CyberBob wrote:Don't be fooled by temporary expense waivers...
Is this a problem if a) you are aware of it, b) are reasonably prepared to jump ship if and when they stop waiving it, and c) are keeping an eye on the ER?

Is there more of an issue here than inertia?

"Temporary" seems to be very long for e.g. the Fidelity Spartan Funds.
In an IRA or 401K no, but in a taxable account - you may end up "locked into" the fund with large unrealized gains.

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nisiprius
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Re: vanguard funds vs others what makes vanguard better

Post by nisiprius » Fri Oct 17, 2008 1:13 pm

cosmos wrote:comparing similar funds like VTSMX and SWEGX from charles schwab, what makes investing in one fund better than the other when they follow the same path?

im trying to figure out if the strategy bogle outlines is only applicable to vanguard funds themselves or if one is currently with another broker like schwab can they be applied to the noload/nofee funds they offer?
The strategy Bogle outlines certainly can be followed using index funds at another broker. To me the Bogle strategy is something like this:

a) "Buy American business." Buy the total market by using index funds. Avoid speculation (trying to predict what's going to do well when). Settle for getting your fair share of the economics of American business, not the speculative elements of the financial market.

b) Costs matter. Index funds are intrinsically cheaper to operate, so they should have lower costs.

c) Stay the course. Buy and hold for the long term.

What this means is that according to this philosophy, if you have decided to use Schwab funds, then Schwab Total Stock Market Index Fund (SWTIX) with an ER of 0.52% would be a wiser choice than an actively managed fund with 1% ER.

Not surprisingly and as others have noted, if you agree with the philosophy you'll probably think Vanguard funds have an edge because they arguably have the best and lowest-cost index funds. But a sane person could stay with another brokerage and/or fund family. The philosophy is more important than the funds and the fund company.

Now, I have not looked this up yet. I'm curious to see how much "costs matter" when applied to SWTIX versus the equivalent Vanguard Total Stock Market fund, VTSMX. And then I'm going to compare both of them to SWSIX. Here are the two Total Stock Market funds:

Image

I'm going to get yelled at for saying this, but I don't see a lot of difference between those funds, do you? The blue line is there, it's just hard to see because the orange line overlays it almost perfectly!
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Waiting for Godot
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Post by Waiting for Godot » Sat Oct 18, 2008 1:03 pm

Here's an article on vanguard's strengths. You may want to search for Mel's article about vanguard's unique structure, that is it being a true mutual fund.

https://personal.vanguard.com/us/Vangua ... 08_ALL.jsp

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PiperWarrior
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Post by PiperWarrior » Sat Oct 18, 2008 1:14 pm

How about tax efficiency if you are looking for stock index mutual funds?

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What if Vanguard Went Broke?

Post by Mel Lindauer » Sat Oct 18, 2008 6:51 pm

Waiting for Godot wrote:Here's an article on vanguard's strengths. You may want to search for Mel's article about vanguard's unique structure, that is it being a true mutual fund.

https://personal.vanguard.com/us/Vangua ... 08_ALL.jsp
Here's a link to the post I made titled "What If Vanguard Went Broke?" that Waiting for Godot was referring to: http://www.bogleheads.org/forum/viewtop ... 439#148439

Regards,

Mel

Laura
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Low costs

Post by Laura » Sat Oct 18, 2008 9:10 pm

Many have talked about the benefit of low costs from the perspective of you keeping more of your money growing for you. Another benefit that is not mentioned as often is that Vanguard also does not need to invest in risky assets to beef up returns enough to cover the cost of higher expenses. As many people were surprised to discover in the last few weeks many of these funds were playing games that were not obvious to investors. Vanguard funds have avoided this trouble because their low cost structure made it easier for them to stick very close to the index.

Vanguard also has expert index fund managers with a long track record of providing the index return less expenses to the investor. In some cases, they are even able to return a little bit more. Running an index isn't as easy as it seems so stick with the experts.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

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