Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
latestartearner
Posts: 10
Joined: Tue Jun 08, 2021 9:14 pm
Contact:

Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by latestartearner »

I am planning to open a new joint taxable brokerage account next year after my partner and I get married.

My partner has his Roth IRA with Fidelity while I have both my individual taxable and Roth IRA at Vanguard. Since Fidelity’s UX and support is more modern, my inclination is to open up our future joint taxable brokerage account with Fidelity and invest in FSKAX.

We would like to use the taxable account as a sinking fund for paying off our vacation home, retirement savings beyond tax advantaged accounts, and also have the flexibility in the future to port funds to Interactive Brokers to take out a margin loan at low rates.

Are there any considerations or relative pros/cons to Fidelity vs Vanguard for these purposes? Eg transaction costs, does interactive brokers allow either of these stocks?

Note: We expect to contribute at least $60k annually to the joint taxable over the next 10 years.
AlohaJoe
Posts: 6025
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by AlohaJoe »

latestartearner wrote: Tue Jun 08, 2021 9:33 pm also have the flexibility in the future to port funds to Interactive Brokers to take out a margin loan at low rates.
Pretty sure Interactive Brokers won't let you margin either of those things. You can't margin mutual funds. Only ETFs. So neither VTSAX nor FSKAX will work for what you want.
greenway23
Posts: 51
Joined: Sun May 16, 2021 9:00 pm

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by greenway23 »

$60k/year over many years could potentially add up to quite a few taxes on capital gain distributions if you hold FSKAX in taxable. You’d avoid that completely by holding VTSAX at Vanguard (you could theoretically also hold it at Fidelity but would pay $75 commission each purchase). Vanguard uses a patented process to avoid distributing capital gains. The patent expires in 2023 but there is no way of knowing if Fidelity will start using the same process and in what funds. I recently had to make the same decision and went with Vanguard even though I wanted to use Fidelity (I live in a high tax state). Some will point that FSKAX, being an index fund, is generally tax efficient for a mutual fund. (Ferdinand2014 has some great posts on this.) There doesn’t appear to be much of a tax drag over 10 years, at least if you live in a low tax state. FSKAX hasn’t thrown off capital gains since 2019 (nominal amount) but distributed quite a few in the preceding years. It could really add up if you end up holding hundreds of thousands for several decades. If you really want to use Fidelity you could just invest in Vanguard ETFs (VTI) but some people prefer MFs, including myself.
calwatch
Posts: 417
Joined: Wed Oct 02, 2013 1:48 am

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by calwatch »

AlohaJoe wrote: Tue Jun 08, 2021 11:13 pm
latestartearner wrote: Tue Jun 08, 2021 9:33 pm also have the flexibility in the future to port funds to Interactive Brokers to take out a margin loan at low rates.
Pretty sure Interactive Brokers won't let you margin either of those things. You can't margin mutual funds. Only ETFs. So neither VTSAX nor FSKAX will work for what you want.
Sure you can, although portfolio margin (for even greater leverage) is off limits. IBKR will give you the standard 50% of market value if you hold the fund for more than 30 days or you ACAT the fund in.

https://www.interactivebrokers.com/en/i ... 1004100808
Topic Author
latestartearner
Posts: 10
Joined: Tue Jun 08, 2021 9:14 pm
Contact:

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by latestartearner »

greenway23 wrote: Tue Jun 08, 2021 11:53 pm $60k/year over many years could potentially add up to quite a few taxes on capital gain distributions if you hold FSKAX in taxable. You’d avoid that completely by holding VTSAX at Vanguard (you could theoretically also hold it at Fidelity but would pay $75 commission each purchase). Vanguard uses a patented process to avoid distributing capital gains. The patent expires in 2023 but there is no way of knowing if Fidelity will start using the same process and in what funds. I recently had to make the same decision and went with Vanguard even though I wanted to use Fidelity (I live in a high tax state). Some will point that FSKAX, being an index fund, is generally tax efficient for a mutual fund. (Ferdinand2014 has some great posts on this.) There doesn’t appear to be much of a tax drag over 10 years, at least if you live in a low tax state. FSKAX hasn’t thrown off capital gains since 2019 (nominal amount) but distributed quite a few in the preceding years. It could really add up if you end up holding hundreds of thousands for several decades.
This is extremely helpful - thank you for sharing your experience. I was unaware that the tax efficiency delta between the two funds could add up over time. While we live in a moderate tax state, I anticipate taxes to generally increase throughout our retirement period and agree that the tax efficient route outweighs modern UX/app experience.
greenway23 wrote: Tue Jun 08, 2021 11:53 pm If you really want to use Fidelity you could just invest in Vanguard ETFs (VTI) but some people prefer MFs, including myself.
Thanks!
1.) Is there a commission/cost differential between investing in VTI with Fidelity vs. VTI with Vanguard?
2.) Based on your explanation above of Vanguard's patented process of avoiding capital gains distributions with VTSAX, it sounds like VTSAX is more tax efficient than VTI. Am I reading that correctly?
Topic Author
latestartearner
Posts: 10
Joined: Tue Jun 08, 2021 9:14 pm
Contact:

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by latestartearner »

calwatch wrote: Wed Jun 09, 2021 2:30 am
AlohaJoe wrote: Tue Jun 08, 2021 11:13 pm
latestartearner wrote: Tue Jun 08, 2021 9:33 pm also have the flexibility in the future to port funds to Interactive Brokers to take out a margin loan at low rates.
Pretty sure Interactive Brokers won't let you margin either of those things. You can't margin mutual funds. Only ETFs. So neither VTSAX nor FSKAX will work for what you want.
Sure you can, although portfolio margin (for even greater leverage) is off limits. IBKR will give you the standard 50% of market value if you hold the fund for more than 30 days or you ACAT the fund in.

https://www.interactivebrokers.com/en/i ... 1004100808
Thanks for sharing this link! I had previously only seen clear documentation or anecdotal examples of individuals putting up VTI for margin at IBKR. I really appreciate that you pointed out the ACAT option for mutual funds, which allows one to bypass the 30d holding rule. This is very helpful and makes me feel more confident about a long-term VTSAX strategy.
Soon2BXProgrammer
Posts: 2419
Joined: Mon Nov 24, 2014 11:30 pm

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by Soon2BXProgrammer »

latestartearner wrote: Wed Jun 09, 2021 8:13 am 2.) Based on your explanation above of Vanguard's patented process of avoiding capital gains distributions with VTSAX, it sounds like VTSAX is more tax efficient than VTI. Am I reading that correctly?
VTI is a different "share class" of VTSAX.. They are one in the same. However, VTI does have a "touch" lower expense ratio. If you held VTSAX at Vanguard, and later decide you want the ETF equivalent, they will gladly convert/morph from VTSAX to VTI your shares without any tax consequence.
Chartered Financial Consultant (ChFC®) -- However I am not your advisor.
Topic Author
latestartearner
Posts: 10
Joined: Tue Jun 08, 2021 9:14 pm
Contact:

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by latestartearner »

Soon2BXProgrammer wrote: Wed Jun 09, 2021 8:18 am
latestartearner wrote: Wed Jun 09, 2021 8:13 am 2.) Based on your explanation above of Vanguard's patented process of avoiding capital gains distributions with VTSAX, it sounds like VTSAX is more tax efficient than VTI. Am I reading that correctly?
VTI is a different "share class" of VTSAX.. They are one in the same. However, VTI does have a "touch" lower expense ratio. If you held VTSAX at Vanguard, and later decide you want the ETF equivalent, they will gladly convert/morph from VTSAX to VTI your shares without any tax consequence.
Super helpful, thanks! In that case, I'll likely use VTSAX for automatic investment (the convenience/automation benefits are huge for me) and VTI for lump-sum market dip purchases.
Soon2BXProgrammer
Posts: 2419
Joined: Mon Nov 24, 2014 11:30 pm

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by Soon2BXProgrammer »

latestartearner wrote: Wed Jun 09, 2021 8:22 am
Soon2BXProgrammer wrote: Wed Jun 09, 2021 8:18 am
latestartearner wrote: Wed Jun 09, 2021 8:13 am 2.) Based on your explanation above of Vanguard's patented process of avoiding capital gains distributions with VTSAX, it sounds like VTSAX is more tax efficient than VTI. Am I reading that correctly?
VTI is a different "share class" of VTSAX.. They are one in the same. However, VTI does have a "touch" lower expense ratio. If you held VTSAX at Vanguard, and later decide you want the ETF equivalent, they will gladly convert/morph from VTSAX to VTI your shares without any tax consequence.
Super helpful, thanks! In that case, I'll likely use VTSAX for automatic investment (the convenience/automation benefits are huge for me) and VTI for lump-sum market dip purchases.
you only need to use VTI if you aren't at Vanguard, or you want to "trade" in the middle of the day.. if you don't care about the end of the day pricing, then VTSAX is easy enough.
Chartered Financial Consultant (ChFC®) -- However I am not your advisor.
Topic Author
latestartearner
Posts: 10
Joined: Tue Jun 08, 2021 9:14 pm
Contact:

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by latestartearner »

Re-sharing a tax-efficiency thread here: viewtopic.php?f=1&t=342995
Along with the 2020 Tax Efficiency Spreadsheet https://docs.google.com/spreadsheets/d/ ... =437441803
Topic Author
latestartearner
Posts: 10
Joined: Tue Jun 08, 2021 9:14 pm
Contact:

Re: Fidelity (FSKAX) vs Vanguard (VTSAX) Taxable Brokerage Account for future Interactive Brokers Margin Loan

Post by latestartearner »

Soon2BXProgrammer wrote: Wed Jun 09, 2021 8:25 am
latestartearner wrote: Wed Jun 09, 2021 8:22 am
Soon2BXProgrammer wrote: Wed Jun 09, 2021 8:18 am
latestartearner wrote: Wed Jun 09, 2021 8:13 am 2.) Based on your explanation above of Vanguard's patented process of avoiding capital gains distributions with VTSAX, it sounds like VTSAX is more tax efficient than VTI. Am I reading that correctly?
VTI is a different "share class" of VTSAX.. They are one in the same. However, VTI does have a "touch" lower expense ratio. If you held VTSAX at Vanguard, and later decide you want the ETF equivalent, they will gladly convert/morph from VTSAX to VTI your shares without any tax consequence.
Super helpful, thanks! In that case, I'll likely use VTSAX for automatic investment (the convenience/automation benefits are huge for me) and VTI for lump-sum market dip purchases.
you only need to use VTI if you aren't at Vanguard, or you want to "trade" in the middle of the day.. if you don't care about the end of the day pricing, then VTSAX is easy enough.
Perfect and agreed, thanks!
Post Reply