first post and a question

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usaaholdout
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first post and a question

Post by usaaholdout »

Hello all. New here. I know my username will catch some flak, but that is ok. I am probably a borderline Vanguard user, at least in my IRA. I will keep some of my normal investing in USAA. I just like having my stuff consolidated. I am currently pretty significantly invested in USAA Target Retirement 2040. I actually moved my IRA from USAA 500 index to that fund when the fund first opened. I have been pretty happy with it to be honest. However, I just started really getting a little more educated on investing, particularly ERs. I noticed during my research that the fund has a .75 ER compared to Vanguard's .18. Big difference that is especially amplified over a long term. However, a pro-USAA source directed me to a fund comparison that showed USAA's Annual report net expense ratio is .03. Does that do anything for me? This source also touted the advantage of the USAA fund as having cheaper shares so I actually get more shares per purchase, which equates to potentially larger dividends? Is that true? Any advice would be appreciated.
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CABob
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Re: first post and a question

Post by CABob »

I don’t have any direct knowledge about USAA, but, have heard mostly good things about them.
I noticed during my research that the fund has a .75 ER compared to Vanguard's .18.
This is a pretty significant difference, but, you should check to see what its effect on your portfolio amounts is. Multiply 0.57% (difference between two ERs) by your investment in the fund to see how much that amount to in your case.
a pro-USAA source directed me to a fund comparison that showed USAA's Annual report net expense ratio is .03.
This confuses me. There certainly is a big difference between 0.75 and 0.03. I would doubt that the 0.03% is correct, but, what you read needs to be clarified. A quick look seems to indicate that the 0.75% is apt to be correct for a USAA TR fund.
This source also touted the advantage of the USAA fund as having cheaper shares so I actually get more shares per purchase, which equates to potentially larger dividends?
I question this statement. Dividends are declared in dollars and cents, but, the percentage is then calculated and that is the number that should be compared with another fund.
Bob
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Watty
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Re: first post and a question

Post by Watty »

Sometimes the expense ratios for a fund withing a 401k will be different than what you might see if you look it up somewhere other than when you are signed into your 401k account.

There can also be versions of the same fund where people with larger amounts of money get lower expense ratios. Even Vanguard does that.
retiredjg
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Re: first post and a question

Post by retiredjg »

Welcome to the forum!

I don't use USAA, but many of the folks that do report they are great for insurance products and less than great for investments. Take that for whatever it is worth.

I did some research on the USAA site at one point - looking for a fund for someone. I left convinced that USAA offers very few index funds and that the expense ratios are high. As I recall, I could only find 1 index fund there - a 500 index. For someone who wants to use mostly index funds, USAA would not be acceptable if I am recalling things correctly.

There often is a difference between gross and net expense ratio. They are usually small differences - nothing like the difference between .75% and .03%. Something is wrong with that. I suppose it is possible they are offering that fund at that low cost for a limited time - a teaser rate or something. But the point is that one fund does not make a portfolio and a teaser rate is rarely a good investment because you just have to change things later.

As for the advantage of cheaper shares....sounds pretty unlikely to me.
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usaaholdout
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Re: first post and a question

Post by usaaholdout »

The source was Yahoo Finance. If you look up the expense/fees for the Vanguard fund, the expense ratio is .18 and the annual report net expense ratio is .18 as well. For the USAA fund, the expense ratio is .75, but the annual report net expense ratio is .03. The bogle head definition page didn't really help me too much. By that definition, it almost sounds like the USAA fund is cheaper, but that is not what the prospectus shows when it does its 10,000/5%/10 year comparison versus Vanguard.

The share thing actually seems like it might be valid as the definition of dividend that I found is that the mutual fund divides its income by the number of shares outstanding and then it is paid as a dividend per share. Seems like if you had more shares, then you would get a bigger piece of the pie. If USAA and Vanguard accumulate a similar gain in a year (which seems to be pretty accurate looking at historical gains) then I would see a better dividend from USAA (unless the ER eats into it too much) because I am buying more shares per investment (nearly double). I may be completely off here...there is a reason I use a TR fund :mrgreen:
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CABob
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Re: first post and a question

Post by CABob »

For the USAA fund, the expense ratio is .75, but the annual report net expense ratio is .03.
Most target retirement funds are funds of funds meaning that the TR fund contains a number of other funds. If this is the case each of the underlying funds will charge an ER and in some cases the TR fund will charge another ER for its administration. I don't know if this is the policy of USAA, but, it is POSSIBLE that the 0.03% is the charge made by the TR fund and the 0.75% is the total charge including expenses from the underlying funds. The fund prospectus should explain this.
In the case of Vanguard TR funds its ER is the prorated ERs of the funds contained without an additional expense.

Edit: I just looked at the TR2040 fund prospectus and appears that my explaination above is correct. In fact it indicates that the expenses of the underlying funds is 0.75% and the charges on top are 0.05% for a total expense of 0.80%.
Bob
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usaaholdout
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Re: first post and a question

Post by usaaholdout »

Really like this site...it is making me do a lot of research. Listen to this though. I pulled up the annual report from 2011 for both USAA and Vanguard funds. Using the expense sections of each report and their charts for how to calculate what I would have paid, the USAA fund came out cheaper, about $40 cheaper. These charts seem to be comparing oranges to oranges. Both have opening account value and then a closing account value about 6 months later and then the actual expenses paid column. The USAA fund is signficantly less in that column due to what appears to be the annualized .05 expense ratio versus the Vanguard annualized .18 expense ratio. I am pretty confused given the listed ER, but it seems based on this information, I should stick with the USAA fund. I will have to pay more attention to my annual reports...didn't even used to read those things. I will have to keep comparing it to the same period for the Vanguard fund as well.
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Re: first post and a question

Post by Mel Lindauer »

This source also touted the advantage of the USAA fund as having cheaper shares so I actually get more shares per purchase, which equates to potentially larger dividends? Is that true?
No, it's not true. If you invest $10,000 at Vanguard and another $10,000 at USAA, regardless of the number of shares you own, a 2.5% dividend on $10,000 invested in the S&P 500 would be the same. Telling you anything different is something only an inexperienced/uninformed person would tell you.
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retiredjg
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Re: first post and a question

Post by retiredjg »

usaaholdout wrote: Seems like if you had more shares, then you would get a bigger piece of the pie.
No. :wink:

Imagine a pie. It is cut in half and you own half of it. You'll get half the total distribution.

Now cut your portion in half. You now have twice as many shares. Will you get more than half of the total distribution?
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Re: first post and a question

Post by retiredjg »

usaaholdout wrote:Really like this site...it is making me do a lot of research. Listen to this though. I pulled up the annual report from 2011 for both USAA and Vanguard funds. Using the expense sections of each report and their charts for how to calculate what I would have paid, the USAA fund came out cheaper, about $40 cheaper. These charts seem to be comparing oranges to oranges.
It appears that something is wrong. Can you post the links and the page number where you found this information?
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usaaholdout
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Re: first post and a question

Post by usaaholdout »

I just googled the Annual reports for the Vanguard 2040 and the USAA 2040 for 2011. USAA covered through jun - Dec 11; Vanguard from apr-sep 11. Each report has an "about your fees" section that provides a chart. The verbage for how to do the calculation is nearly identical in both...almost seems like that is regulatory in nature. there is an actual fees part and a hypothetical 5% section in each for the stated purpose of comparing funds. I don't know if USAA is refunding all fees at the moment on these funds, but for now it is paying to stick with them according to this annual report.

p 63-65 in the USAA annual report https://content.usaa.com/mcontent/stati ... =509935790

p 67-68 in the Vanguard annual report http://www.vanguard.com/funds/reports/q3080b.pdf
retiredjg
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Re: first post and a question

Post by retiredjg »

USAA is only calculating the .05% ER of the fund itself. They have not included the acquired fund fees and expenses (the expenses paid by the underlying funds).

Vanguard does not do it that way.

Go back to page 2 of that first link you provided (2040 prospectus) and read the part about fees again.
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Re: first post and a question

Post by Easy Rhino »

USAA mutual funds are pretty good, I used to have their SP500 fund years ago. and I really like their insurance. And their banking is solid too.

But I like Vanguard's fund choices better!
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Re: first post and a question

Post by NYBoglehead »

usaaholdout,

I am a USAA member; I do all my banking with them and car insurance, renter's insurance, and have an annuity there. I think USAA is outstanding. That said, even after accumulating a significant balance in my Roth IRA with them, I transferred it all to Vanguard once I read Jack Bogle's "Little book of Common Sense Investing." I suggest you read that and "The Clash of the Cultures."

After reading those I guarentee you will have an itch to transfer your funds. The difference between USAA Target 2040 and Vanguard 2040 is 57 basis points. (.57%)

$10,000 invested today @ 10.57% in 30 years = $331,710
$10,000 invested today @ 10.00% in 30 years = $174,494.02

That .57% annually over 30 years on a $10,000 initial investment cuts your balance in nearly half over 30 years. HALF!! You can cut your expenses even more by creating your own Target Date fund via the 3-fund portfolio with Admiral Shares!!

I will be a lifelong USAA member, but for investments Vanguard is simply the best.
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Re: first post and a question

Post by pjstack »

I agree with NYboglehead (above). I also have been an USAA member for many years. Their insurance is outstanding and I have home, auto, and umbrella with them.

Once upon a time I had a mutual fund with them also, but switched to Vanguard quite a while ago. Low expense ratios are the reason.
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Re: first post and a question

Post by TA_Lurker »

NYBoglehead wrote: $10,000 invested today @ 10.57% in 30 years = $331,710
$10,000 invested today @ 10.00% in 30 years = $174,494.02
I got different numbers. Did I do the math wrong?

10000*1.1057^30 = $203,760.17
10000*1.1^30 = $174,494.02
NYBoglehead
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Re: first post and a question

Post by NYBoglehead »

TA_Lurker wrote:
NYBoglehead wrote: $10,000 invested today @ 10.57% in 30 years = $331,710
$10,000 invested today @ 10.00% in 30 years = $174,494.02
I got different numbers. Did I do the math wrong?

10000*1.1057^30 = $203,760.17
10000*1.1^30 = $174,494.02

Yeah thanks for the assist, had something else already in the calculator for the first one.
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Re: first post and a question

Post by staythecourse »

For the OP,

Be vary wary of funds that say they are waiving their expenses for the moment. That basically is them saying we are holding off their cut of the profits until the AUM of the fund get large enough. If the fund is in nontaxable accounts no big deal as you can just liquidate it if (more likely when) they stop waiving their fees and just switch to something lower cost like Vanguard or an alternative. If your money is in taxable I would be VERY WARY. The whole idea of them holding off taking their cut is them figuring by the time they take their cut you will have too much capital gains in the fund to want to liquidate it AND/ OR you won't notice when they do change their policy.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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usaaholdout
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Re: first post and a question

Post by usaaholdout »

retiredjg wrote:USAA is only calculating the .05% ER of the fund itself. They have not included the acquired fund fees and expenses (the expenses paid by the underlying funds).

Vanguard does not do it that way.

Go back to page 2 of that first link you provided (2040 prospectus) and read the part about fees again.
If you mean the second page of "about your funds fees", both prospectus have the same blurb about not including non-recurring fees in the ER calculation. Page 53 of the USAA report explains that the current ER is .05% due to reimbursements/Manager-agreement. I will definitely keep an eye on this though as the difference between .75 and .18 is what drove me to this board to get some more information. For now though, it pays for me to keep my Roth in this USAA fund as it is cheaper for now. Hopefully USAA will continue to keep the fees lower than or comparable to Vanguard to keep this fund competitive.
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Re: first post and a question

Post by pkcrafter »

USAA holdout, note also on page 53 it states the fee waver expires May 1, 2012.

The piece of information that retiredjg is trying to get across is shown on page 61, note (b), which states "calculated excluding the Funds' pro-rata share of expenses of the underlying USAA funds."

What this means is the fund is charging .05% for fund management on top of the cost of the funds held in the TR fund. You are paying .05% PLUS the expense ratios of the funds held. As an example, TR 2040 holds USAA International Inst. UIIFX, which has an ER of 0.99%. You are paying that plus .05%. Vanguard does not tack on any additional fees to the cost of the underlying expense ratios of the funds held in any fund-of-funds. Bottom line--you aren't getting a deal and you aren't paying less than a Vanguard TR fund.

Paul









When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: first post and a question

Post by retiredjg »

I'm torn. I'm wondering if they are running a teaser rate of .05% (which essentially excludes the costs of the underlying funds) or if they are acting like there are no costs for the underlying funds. First I think one thing, then I think the other. It depends on which part of the documents you read.

Right now, I'm leaning toward a teaser rate that may or may not have expired in May.
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CABob
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Re: first post and a question

Post by CABob »

retiredjg wrote:I'm torn. I'm wondering if they are running a teaser rate of .05% (which essentially excludes the costs of the underlying funds) or if they are acting like there are no costs for the underlying funds. First I think one thing, then I think the other. It depends on which part of the documents you read.

Right now, I'm leaning toward a teaser rate that may or may not have expired in May.
I also am a bit confused by the documentation. I would note that the prospectus dated May 1, 2012 contains the information indicating that prorated costs for the underlying funds are NOT included in the fund cost calculations.
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usaaholdout
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Re: first post and a question

Post by usaaholdout »

I am going to hold it until this year's report and see what the actual expenses have been for this year. If USAA is up to its prospectus rate, then I will jump ship. I am not going to lie. I like keeping the USAA for now as it is convenient for me in terms of having everything consolidated. If you can't calculate the actual expenses you paid for holding the fund with that chart in the back which is the same format for both Vanguard and USAA, how do you do it? Strip away all of the confusing tables and that is what that chart is supposed to allow you to do -compare funds and calculate what you likely paid. What is to say one company is lying and the other isn't.
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Re: first post and a question

Post by JamesSFO »

usaaholdout wrote:I am going to hold it until this year's report and see what the actual expenses have been for this year. If USAA is up to its prospectus rate, then I will jump ship. I am not going to lie. I like keeping the USAA for now as it is convenient for me in terms of having everything consolidated. If you can't calculate the actual expenses you paid for holding the fund with that chart in the back which is the same format for both Vanguard and USAA, how do you do it? Strip away all of the confusing tables and that is what that chart is supposed to allow you to do -compare funds and calculate what you likely paid. What is to say one company is lying and the other isn't.
I love USAA, but their mutual funds have high ERs.

You seem to not want to believe the _fact_ that USAA is charging more than Vanguard here.

Check how an INDEPENDENT third party, Morningstar reports it:

http://quote.morningstar.com/fund/f.aspx?t=URFRX ---- 0.80% ER

http://quote.morningstar.com/fund/f.aspx?t=VFORX ---- 0.19% ER

As another poster already pointed out over 30 years that's a lot of money to pass up for convenience.
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JamesSFO
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Re: first post and a question

Post by JamesSFO »

Also USAA's own website discloses the 0.80% (and 0.75%) numbers in plain speak:

https://www.usaa.com/inet/imco_mutualfu ... ategory=TF
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Re: first post and a question

Post by retiredjg »

CABob wrote:I also am a bit confused by the documentation. I would note that the prospectus dated May 1, 2012 contains the information indicating that prorated costs for the underlying funds are NOT included in the fund cost calculations.
Correct. The $61 annual expense on a $10k investment (plus a little growth) indicates an expense ratio of .60%, not .05%. I'm going to take a WAG and say that this fund used to have an expense ratio of about .80% and dropped it to a teaser of .05% and now it is .60%. But that does not explain why their own website dated today says .80%.

It's a mystery. :?

Of course, some curious USAA customer could actually call and ask.

It is not a mystery to me, though, which fund I would pick. :D
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Re: first post and a question

Post by JamesSFO »

retiredjg wrote:
CABob wrote:I also am a bit confused by the documentation. I would note that the prospectus dated May 1, 2012 contains the information indicating that prorated costs for the underlying funds are NOT included in the fund cost calculations.
Correct. The $61 annual expense on a $10k investment (plus a little growth) indicates an expense ratio of .60%, not .05%. I'm going to take a WAG and say that this fund used to have an expense ratio of about .80% and dropped it to a teaser of .05% and now it is .60%. But that does not explain why their own website dated today says .80%.

It's a mystery. :?

Of course, some curious USAA customer could actually call and ask.

It is not a mystery to me, though, which fund I would pick. :D
$61 is for a different fund, the 2040 shows $82.

So my WAG is that the ER has been 0.80 and recently they took a 0.05 ABATEMENT which explains the USAA website showing 0.80 and then 0.75 after abatement.

There really is no mystery here, USAA has relatively high ERs for this fund.
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usaaholdout
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Re: first post and a question

Post by usaaholdout »

Another third party (Yahoo finance) has the fee at .03 which matches the last annual report. The same annual report lists it at .80 then at the chart in the back the actual calculation shows it at .05. I am not arguing that USAA funds are cheaper on the whole than Vanguard. However, right now this fund appears to be cheaper due to some kind of refund/rebate going on. Guess we will see if that continues when the annual report comes out in Dec.
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Re: first post and a question

Post by JamesSFO »

usaaholdout wrote:Another third party (Yahoo finance) has the fee at .03 which matches the last annual report. The same annual report lists it at .80 then at the chart in the back the actual calculation shows it at .05. I am not arguing that USAA funds are cheaper on the whole than Vanguard. However, right now this fund appears to be cheaper due to some kind of refund/rebate going on. Guess we will see if that continues when the annual report comes out in Dec.
USAA has the fee at 0.75%... Why not go with that information? The prospectus makes it pretty clear that you were paying $82 on $10K for a year which is even higher... why not go with that information?

Stop grasping at straws, this is simple, there are two ways of displaying the ER for a fund of funds. The ER of the fund of funds EXCLUDING the other funds (0.03) and the TOTAL ER on the fund, 0.75 for this fund. Which matches the information.

Quite honestly, many of us here love USAA, but that does not blind us to the facts which is that USAA is charging a TOTAL fee of 0.75% for this fund and VG is charging a TOTAL fee 0.18% for their fund... (or put differently if VG reported the same way as USAA they would claim 0%)
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Re: first post and a question

Post by retiredjg »

JamesSFO wrote:$61 is for a different fund, the 2040 shows $82.

So my WAG is that the ER has been 0.80 and recently they took a 0.05 ABATEMENT which explains the USAA website showing 0.80 and then 0.75 after abatement.

There really is no mystery here, USAA has relatively high ERs for this fund.
You are right! I was looking at the first fund that came up, not the 2040 fund.

So here's one last WAG from me. The ER was .80% (.75% for the underlying funds and .05% for the fund itself). They dropped it for a teaser fee, but that has expired. The ER is back up to .80%.

Alternative WAG - there never was a teaser rate and that chart that the OP keeps referring to only applies to the .05% they add on to hold the funds together in one fund. I don't like this idea because it seems sleazy to me and I'd be surprised if USAA would do that.
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Please Read the Foot Note

Post by EyeDee »

usaaholdout wrote:I am going to hold it until this year's report and see what the actual expenses have been for this year. If USAA is up to its prospectus rate, then I will jump ship. I am not going to lie. I like keeping the USAA for now as it is convenient for me in terms of having everything consolidated. If you can't calculate the actual expenses you paid for holding the fund with that chart in the back which is the same format for both Vanguard and USAA, how do you do it? Strip away all of the confusing tables and that is what that chart is supposed to allow you to do -compare funds and calculate what you likely paid. What is to say one company is lying and the other isn't.
.

If you read the ** Foot note on page 65 of USAA Annual report, it says ". . . and excludes expenses of the acquired funds . . .".

Acquired funds is another name for underlying funds. USAA is NOT including the cost of the acquired/underlying funds in their calculation at the end of the annual report while Vanguard does not have a footnote as Vanguard includes the cost of the acquired/underlying as Vanguard only charges for the acquired/underlying funds - the illustrations are not identical.

You are comparing apples to oranges.
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usaaholdout
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Re: first post and a question

Post by usaaholdout »

Taking this conversation a little bit in a different direction. If I do move my IRA to Vanguard, I want to be sure I have all the fees down. USAA already told me they charge a $20 transfer fee. Heard Vanguard might cover that? Anyone know? Also, those of you with USAA checking, do you have it set up for recurring transfers to Vanguard...any cost there? I was thinking about doing a USAA Brokerage account, but it sounds like that will have recurring costs as well a $75 upfront fee. I have no interest in dabbling in stocks etc.
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Re: first post and a question

Post by DualIncomeNoDebt »

A transfer fee means nothing when compared with the long-term low-cost performance of the Vanguard funds compared to the higher expense USAA funds. The expense differential has repeatedly been pointed out to you. Focus on what matters.
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usaaholdout
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Re: first post and a question

Post by usaaholdout »

Did I say I didn't want to pay the transfer fee? No...I just said I heard Vanguard might refund it and was asking if that was true. And I have seen the differential thanks. Good grief...forget to take your meds this morning? I am also trying to compare investing directly with Vanguard vs. a brokerage account. There are some USAA bank users here so I am trying to see what they do.
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Re: first post and a question

Post by JamesSFO »

usaaholdout wrote:Did I say I didn't want to pay the transfer fee? No...I just said I heard Vanguard might refund it and was asking if that was true. And I have seen the differential thanks. Good grief...forget to take your meds this morning? I am also trying to compare investing directly with Vanguard vs. a brokerage account. There are some USAA bank users here so I am trying to see what they do.
My parents recently moved a USAA mutual fund from USAA->VG and did NOT get charged a transfer fee. They requested the transfer SOLELY from the VG side using the VG paperwork.

Some 3rd party mutual funds may have trading fee to buy or sell at VG, the particular USAA mutual fund my parents had did not.

If there is a fee for whatever reason you can just sell the USAA 2040 fund and have USAA MMkt and let the cash transfer over and then buy VG 2040 fund when the cash comes over which would be _less likely_ to incur fees.
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JamesSFO
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Re: first post and a question

Post by JamesSFO »

VG trading fees for NON-VG funds is here <https://personal.vanguard.com/us/whatwe ... ommissions> looks like $35 unless it is an NTF fund.

But if you look up the ticker it is listed as NTF ("USAA Target Retirement 2040 (URFRX) [NTF]") so I suspect VG will not charge you anything, try what my parents did fill out the VG forms to have the transfer accomplished.

Best!
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Re: first post and a question

Post by retiredjg »

usaaholdout wrote:Taking this conversation a little bit in a different direction. If I do move my IRA to Vanguard, I want to be sure I have all the fees down.
Since this is an IRA, there will probably be a fee to close the account. I think that is because they have end of the year IRA paperwork to do. Apparently, that is $20 (which is quite cheap) and no, Vanguard does not refund this.

You can link any bank account you want to your accounts at Vanguard. There is no charge from Vanguard for that link and no charge to move money back and forth. It takes about 2 business days.

Vanguard is split into two separate entities - the Vanguard Mutual Fund side of the house and the Vanguard Brokerage Service (VBS). On the mutual fund side, the only thing you buy is Vanguard mutual funds. If you sign up for electronic prospectus delivery and electronic paperwork, there are no annual fees. The funds have no loads (although an occasional fund has a purchase fee or a redemption fee).

On the VBS side, you purchase Vanguard ETFs, individual stocks or bonds, and mutual funds from companies other than Vanguard. I think there is no charge for Vanguard ETFs but there probably are transaction fees for ETFs and mutual funds from other companies. There is also an annual fee, I think, but I don't know if that one is waived for electronic paperwork. I don't use the VBS, so I'm not sure about this part.
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