Index Funds Expense Ratios

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Mr. Jelly
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Index Funds Expense Ratios

Post by Mr. Jelly » Wed Nov 07, 2018 8:03 pm

I hold a Vanguard fund that holds Vanguard index funds. VTINX. The expense ratio is 0.13%. The five funds that make up VTINX have expense ratios of 0.15%, 0.14%, 0.15%, 0.13% and 0.17%. If I were to get out of the VTINX fund and invest in the five funds that make up the VTINX fund would I eliminate the 0.13% expense ratio?

xenial
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Re: Index Funds Expense Ratios

Post by xenial » Wed Nov 07, 2018 8:14 pm

Mr. Jelly wrote:
Wed Nov 07, 2018 8:03 pm
I hold a Vanguard fund that holds Vanguard index funds. VTINX. The expense ratio is 0.13%. The five funds that make up VTINX have expense ratios of 0.15%, 0.14%, 0.15%, 0.13% and 0.17%. If I were to get out of the VTINX fund and invest in the five funds that make up the VTINX fund would I eliminate the 0.13% expense ratio?
No, but you might be able to reduce it. The 0.13% represents the weighted average expense ratio of the Investor shares of the underlying funds. It's not an extra fee. If your portfolio is large enough for you to purchase Admiral shares of the underlying funds, you could save some money by investing in them directly.

Edit: Even with a smaller portfolio, you could use the ETF share classes of the five funds to reduce your expenses. I'm not sure it's worth the trouble though.

Silk McCue
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Re: Index Funds Expense Ratios

Post by Silk McCue » Wed Nov 07, 2018 8:28 pm

.13% ER is a pittance. $130 per year on $100k. $13 per year on $10k. I wouldn’t create more work for yourself than necessary.

Cheers

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arcticpineapplecorp.
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Re: Index Funds Expense Ratios

Post by arcticpineapplecorp. » Wed Nov 07, 2018 9:21 pm

i answered a similar question with regards to a TD2055 fund (there are some differences, this fund has 4 funds and your TD Retirement Income has 5 funds) but the concept is similar. Read here to see what the difference would be between holding the funds separately (that make up the TD 2055 fund) and keeping them together in the TD fund:

viewtopic.php?f=1&t=262998#p4198147

What do you think about the difference in costs? Is it worth it? Might the effort saved by automatic rebalancing worth the small extra cost of the TD fund?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

Mr. Jelly
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Joined: Fri Sep 21, 2018 5:12 pm

Re: Index Funds Expense Ratios

Post by Mr. Jelly » Wed Nov 07, 2018 10:23 pm

Thank you for the replies. I was mistaken in thinking I was being charged six expense ratios. One obvious and five hidden. Thanks again for the responses.

Silk McCue
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Re: Index Funds Expense Ratios

Post by Silk McCue » Thu Nov 08, 2018 7:13 am

Mr. Jelly wrote:
Wed Nov 07, 2018 10:23 pm
Thank you for the replies. I was mistaken in thinking I was being charged six expense ratios. One obvious and five hidden. Thanks again for the responses.
You are welcome. You are certainly not the first person to have been confused regarding the actual fees charged in a funds of funds holding. There are numerous examples of it in threads here.

Cheers

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oldcomputerguy
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Re: Index Funds Expense Ratios

Post by oldcomputerguy » Thu Nov 08, 2018 8:00 am

Mr. Jelly wrote:
Wed Nov 07, 2018 8:03 pm
I hold a Vanguard fund that holds Vanguard index funds. VTINX. The expense ratio is 0.13%. The five funds that make up VTINX have expense ratios of 0.15%, 0.14%, 0.15%, 0.13% and 0.17%. If I were to get out of the VTINX fund and invest in the five funds that make up the VTINX fund would I eliminate the 0.13% expense ratio?
If you did, you would no longer be paying the 0.13% expense of VTINX, but you would then instead be paying the individual expenses of the five underlying funds.

The underlying funds in VTINX are all Investor share class funds. Each of those funds has an Admiral share class, so if you had enough to invest at least $10,000 in each underlying fund (according to your desired asset allocation), the expense ratios would be 0.04% (Total Stock), 0.05% (Total Bond), 0.11% (Total International Stock), 0.11% (Total International Bond), and 0.10% (TIPS) investing in the separate funds rather than the Target Date fund. You may save a dollar or two over the course of the year, but I wouldn't lay awake at night worrying about it.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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