Fidelity Files for Four Fidelity ZERO℠ Funds (0.00% ER)

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jalbert
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jalbert » Fri Aug 03, 2018 2:59 am

It appears the profit center may be that transactions will be executed at brokers owned by Fidelity.

Fidelity controls the indices being tracked. No doubt one aspect of their motivation for that is not needing to pay royalties to an index company. But it also means that tracking error is not measured against an independent benchmark. You can of course compare performance to established benchmarks, but you may lose sone transparency. Also being in control of the indices they track can be a back door to active mgmt decisions.

The loss of an independent 3rd party for index governance does not seem worth 3 bp/year to me even if other net costs are as low. I expect these to be popular products nonetheless.
Risk is not a guarantor of return.

OPM Investor
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by OPM Investor » Fri Aug 03, 2018 9:36 am

Hello. Long-term lurker, first-time poster. :) As others have noted, the math is a little tricky when deciding between ITOT and FZROX in a taxable account. ITOT has an expense ratio of .03%, but FSTMX (for comparison purposes with FZROX) paid out about .7% of its NAV last year in capital gains last year. Assuming I'm in the 15% bracket for long-term capital gains, can anyone tell me how ITOT and FZROX would compare for after-tax return purposes (assuming for the sake of argument that their pre-tax returns are the same)? I'm guessing that the difference would be marginal to say the least, but I just want to be sure. Thanks!

TIAX
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TIAX » Fri Aug 03, 2018 9:40 am

jalbert wrote:
Fri Aug 03, 2018 2:59 am
It appears the profit center may be that transactions will be executed at brokers owned by Fidelity.

Fidelity controls the indices being tracked. No doubt one aspect of their motivation for that is not needing to pay royalties to an index company. But it also means that tracking error is not measured against an independent benchmark. You can of course compare performance to established benchmarks, but you may lose sone transparency. Also being in control of the indices they track can be a back door to active mgmt decisions.

The loss of an independent 3rd party for index governance does not seem worth 3 bp/year to me even if other net costs are as low. I expect these to be popular products nonetheless.
Excellent points. And I imagine Vanguard considered these when it switched to CRSP indexes a few years ago. Additionally, as far as I know, this would be the first index Fidelity would be constructing so there could be a learning curve for them.

craimund
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by craimund » Fri Aug 03, 2018 9:51 am

Spirit Rider wrote:
Thu Aug 02, 2018 11:14 pm
Chrono Triggered wrote:
Thu Aug 02, 2018 10:11 pm
Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm
triceratop wrote:
Thu Aug 02, 2018 5:38 pm
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
Until Vanguard's patent(s) expire.
When do they expire?
I'm not entirely sure. Most patents generally expire 20 years after the filing date. The basic Vanguard Vipers patent was filed in 2001 and would expire in 2021. However, an amended patent was filed in 2005, but I don't know if that would extend the expiration date.
The expiration date of a patent cannot be extended by filing an additional patent application. In fact, if the later filed application claims priority to the initial application, both applications will have the same patent term dictated by the first filing.

After doing some research on this, it appears that the later filed Vanguard patent (US 7,337,138 B2) is continuation (i.e., claims priority) to the application which matured into the initial Vanguard patent (6,879,964). As a continuation, the newer '138 patent has the same twenty year patent term as the initial patent. Both patents will therefore expire on March 7, 2021.

Probably more info than needed but I am a patent attorney and former patent examiner.
"When you ain't got nothing, you got nothing to lose"-Bob Dylan 1965. "When you think that you've lost everything, you find out you can always lose a little more"-Dylan 1997

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Spirit Rider » Fri Aug 03, 2018 10:16 am

craimund wrote:
Fri Aug 03, 2018 9:51 am
Spirit Rider wrote:
Thu Aug 02, 2018 11:14 pm
Chrono Triggered wrote:
Thu Aug 02, 2018 10:11 pm
Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm
triceratop wrote:
Thu Aug 02, 2018 5:38 pm
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
Until Vanguard's patent(s) expire.
When do they expire?
I'm not entirely sure. Most patents generally expire 20 years after the filing date. The basic Vanguard Vipers patent was filed in 2001 and would expire in 2021. However, an amended patent was filed in 2005, but I don't know if that would extend the expiration date.
The expiration date of a patent cannot be extended by filing an additional patent application. In fact, if the later filed application claims priority to the initial application, both applications will have the same patent term dictated by the first filing.

After doing some research on this, it appears that the later filed Vanguard patent (US 7,337,138 B2) is continuation (i.e., claims priority) to the application which matured into the initial Vanguard patent (6,879,964). As a continuation, the newer '138 patent has the same twenty year patent term as the initial patent. Both patents will therefore expire on March 7, 2021.

Probably more info than needed but I am a patent attorney and former patent examiner.
I for one really appreciate all the included information.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by ngando » Fri Aug 03, 2018 10:29 am

I bought FTIPX like a week ago in my Non-Taxable account. I know the fees for this fund dropped to 0.06 now, which makes me really happy. Is there a reason not to just transfer all of that into FZILX? (I think I read the latest doesn't include smallcap, but maybe I'm wrong).

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Fidelity lowers Expenses on existing Funds

Post by bligh » Fri Aug 03, 2018 10:31 am

[Thread merged into here, see below. --admin LadyGeek]

Hey Guys,

Just FYI .. Apart from the new Zero expense ration funds that they announced, it looks like they dropped the expense ratios on most of their funds. For the fund I hold it looks like their expense ratios are significantly lower than Vanguard. Looks like they combined all their various share classes into one, and set the minimum investment to $0

https://www.fidelity.com/bin-public/060 ... esting.pdf

What do you guys think? Is that enough to make you move your funds over from Vanguard to Fidelity?

I personally hold investments with Fidelity as well as Charles Schwab.. But the majority of my money is with Vanguard. I am tempted to move more of my money over to Fidelity with this change.

TIAX
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TIAX » Fri Aug 03, 2018 10:33 am

craimund wrote:
Fri Aug 03, 2018 9:51 am
Spirit Rider wrote:
Thu Aug 02, 2018 11:14 pm
Chrono Triggered wrote:
Thu Aug 02, 2018 10:11 pm
Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm
triceratop wrote:
Thu Aug 02, 2018 5:38 pm
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
Until Vanguard's patent(s) expire.
When do they expire?
I'm not entirely sure. Most patents generally expire 20 years after the filing date. The basic Vanguard Vipers patent was filed in 2001 and would expire in 2021. However, an amended patent was filed in 2005, but I don't know if that would extend the expiration date.
The expiration date of a patent cannot be extended by filing an additional patent application. In fact, if the later filed application claims priority to the initial application, both applications will have the same patent term dictated by the first filing.

After doing some research on this, it appears that the later filed Vanguard patent (US 7,337,138 B2) is continuation (i.e., claims priority) to the application which matured into the initial Vanguard patent (6,879,964). As a continuation, the newer '138 patent has the same twenty year patent term as the initial patent. Both patents will therefore expire on March 7, 2021.

Probably more info than needed but I am a patent attorney and former patent examiner.
Not quite correct since even patents claiming priority to the same application can have different patent term adjustment based on Patent Office (and sometimes regulatory) delays.

foamypirate
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by foamypirate » Fri Aug 03, 2018 10:41 am

Well, I had $14.93 abandoned in my Fidelity CMA, so I decided to transfer it to my brokerage and buy $14.93 worth of FZROX (Fidelity Zero Total Market). By my calculations, with a 7% return, by the time I retire, I should have $209. :sharebeer

asif408
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Re: Fidelity lowers Expenses on existing Funds

Post by asif408 » Fri Aug 03, 2018 10:42 am

Not enough to move. If I was just starting out, though, I might start at Fidelity.

TheGipper
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Re: Fidelity lowers Expenses on existing Funds

Post by TheGipper » Fri Aug 03, 2018 10:46 am

Press release says it will also lower their 529s. Anyone else confirm this and how much did it drop the total 529 ER?

craimund
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by craimund » Fri Aug 03, 2018 10:56 am

TIAX wrote:
Fri Aug 03, 2018 10:33 am
craimund wrote:
Fri Aug 03, 2018 9:51 am
Spirit Rider wrote:
Thu Aug 02, 2018 11:14 pm
Chrono Triggered wrote:
Thu Aug 02, 2018 10:11 pm
Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm

Until Vanguard's patent(s) expire.
When do they expire?
I'm not entirely sure. Most patents generally expire 20 years after the filing date. The basic Vanguard Vipers patent was filed in 2001 and would expire in 2021. However, an amended patent was filed in 2005, but I don't know if that would extend the expiration date.
The expiration date of a patent cannot be extended by filing an additional patent application. In fact, if the later filed application claims priority to the initial application, both applications will have the same patent term dictated by the first filing.

After doing some research on this, it appears that the later filed Vanguard patent (US 7,337,138 B2) is continuation (i.e., claims priority) to the application which matured into the initial Vanguard patent (6,879,964). As a continuation, the newer '138 patent has the same twenty year patent term as the initial patent. Both patents will therefore expire on March 7, 2021.

Probably more info than needed but I am a patent attorney and former patent examiner.
Not quite correct since even patents claiming priority to the same application can have different patent term adjustment based on Patent Office (and sometimes regulatory) delays.
Same 20 year term as calculated from the priority date. Correct that PTA can add additional term due to PTO and regulatory delays. Can have different adjusted terms. No PTA in the case of either of these patents.
"When you ain't got nothing, you got nothing to lose"-Bob Dylan 1965. "When you think that you've lost everything, you find out you can always lose a little more"-Dylan 1997

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by PrettyCoolWorkshop » Fri Aug 03, 2018 11:29 am

I took the opportunity today to tax-loss-harvest out of IXUS and into FZILX. I welcome the dawn of the new era, where the finance industry stops making us pay them, and just lets us pay ourselves instead!
Be greedy and fearful. All the time.

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PrettyCoolWorkshop
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by PrettyCoolWorkshop » Fri Aug 03, 2018 11:52 am

Angst wrote:
Thu Aug 02, 2018 1:00 pm
lukestuckenhymer wrote:
Thu Aug 02, 2018 12:10 pm
smectym wrote:
Wed Aug 01, 2018 7:08 pm

If we liked Vanguard back when it was "cheapest," and now Acme is "cheapest," we should now like Acme better than Vanguard.

Smectym
We also like Vanguard (and continue to do so) because of its distribution structure and how we never see/pay taxes on LTCG distributions.

You got that right! Though it seems to slip by a lot of folk posting in this thread.

But if the hoi polloi of Boggledom want to follow Fidelity's siren song of a couple basis points and stampede on out of here, perhaps the quality of discussion within the website will rise by a few percentage points. :)

As you and others have already pointed out, there are good reasons why it does not make sense to jump from Vanguard's index offerings to Fidelity's new "Zero" mutual funds simply because of the differences in ERs.

Things such as the following can and likely will continue to easily subsume a few basis points. The task is a bit more complicated than just choosing the lowest ER:
  • Tracking Error
  • Capital Gains
  • Securities lending
  • Mutual Ownership Structure
Take a deep breath, maybe change your underwear and then check your understanding of the implications of the above issues.
What is the distinction in regards to capital gains when using an equivalent vanguard fund? How is their capital gains less expensive?

As an aside, I am only a fidelity customer because my wife works for fidelity and I have to use them b/c of compliance. I was a vanguard customer previously.
Be greedy and fearful. All the time.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jhfenton » Fri Aug 03, 2018 11:56 am

PrettyCoolWorkshop wrote:
Fri Aug 03, 2018 11:52 am
What is the distinction in regards to capital gains when using an equivalent vanguard fund? How is their capital gains less expensive?

As an aside, I am only a fidelity customer because my wife works for fidelity and I have to use them b/c of compliance. I was a vanguard customer previously.
It's the patent that is discussed above. Vanguard's index mutual funds have an ETF share class that allows them to use the ETF mechanism to off-load low-basis securities without realizing capital gains inside the funds. If you look at Vanguard's index mutual funds, they never distribute capital gains, whereas the equivalent Fidelity and Schwab funds do.

(Edited: corrected high-basis to low-basis)
Last edited by jhfenton on Fri Aug 03, 2018 2:02 pm, edited 2 times in total.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by radiowave » Fri Aug 03, 2018 12:02 pm

Someone may have mentioned this above but Fidelity Total US Stock FSTVX ER is 0.015% and Total Bond FSTVX is not 0.025%. Life is good.
Last edited by radiowave on Fri Aug 03, 2018 12:23 pm, edited 1 time in total.
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PrettyCoolWorkshop
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by PrettyCoolWorkshop » Fri Aug 03, 2018 12:10 pm

jhfenton wrote:
Fri Aug 03, 2018 11:56 am
PrettyCoolWorkshop wrote:
Fri Aug 03, 2018 11:52 am
What is the distinction in regards to capital gains when using an equivalent vanguard fund? How is their capital gains less expensive?

As an aside, I am only a fidelity customer because my wife works for fidelity and I have to use them b/c of compliance. I was a vanguard customer previously.
It's the patent that is discussed above. Vanguard's index mutual funds have an ETF share class that allows them to use the ETF mechanism to off-load high basic securities without realizing capital gains inside the funds. If you look at Vanguard's index mutual funds, they never distribute capital gains, whereas the equivalent Fidelity and Schwab funds do.
Cool, thanks for the info. Out of curiosity I went ahead and plotted a comparison between IXUS and VXUS, it looks like IXUS has outperformed by 1.85% over the last 5 years, although they do not track the same index (I think it is MSCI vs FTSE indices). So I suppose the effect of Vanguard's efficiencies (although I certainly do believe in them) are not strong enough to overcome the other minutiae that differ between them, although for a difference as large as 1.85% this should not be surprising. Wish I knew where to look up tracking error directly.

https://yhoo.it/2n5K7ds
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jhfenton » Fri Aug 03, 2018 12:46 pm

PrettyCoolWorkshop wrote:
Fri Aug 03, 2018 12:10 pm
Cool, thanks for the info. Out of curiosity I went ahead and plotted a comparison between IXUS and VXUS, it looks like IXUS has outperformed by 1.85% over the last 5 years, although they do not track the same index (I think it is MSCI vs FTSE indices). So I suppose the effect of Vanguard's efficiencies (although I certainly do believe in them) are not strong enough to overcome the other minutiae that differ between them, although for a difference as large as 1.85% this should not be surprising. Wish I knew where to look up tracking error directly.

https://yhoo.it/2n5K7ds
You can't use price charts on Yahoo for comparing funds. They don't include dividends.

If you compare them on M*, you'll see that VXUS and IXUS have almost identical performance since IXUS launched on 10/18/12 (and over the last 5 years), with VXUS coming out a few dollars ahead ($14,280.46 vs $14,259.18 on growth of $10,000 charts). (VXUS is $17.46 ahead over 5 years.)

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Fri Aug 03, 2018 12:50 pm

PrettyCoolWorkshop wrote:
Fri Aug 03, 2018 12:10 pm
jhfenton wrote:
Fri Aug 03, 2018 11:56 am
PrettyCoolWorkshop wrote:
Fri Aug 03, 2018 11:52 am
What is the distinction in regards to capital gains when using an equivalent vanguard fund? How is their capital gains less expensive?

As an aside, I am only a fidelity customer because my wife works for fidelity and I have to use them b/c of compliance. I was a vanguard customer previously.
It's the patent that is discussed above. Vanguard's index mutual funds have an ETF share class that allows them to use the ETF mechanism to off-load high basic securities without realizing capital gains inside the funds. If you look at Vanguard's index mutual funds, they never distribute capital gains, whereas the equivalent Fidelity and Schwab funds do.
Cool, thanks for the info. Out of curiosity I went ahead and plotted a comparison between IXUS and VXUS, it looks like IXUS has outperformed by 1.85% over the last 5 years, although they do not track the same index (I think it is MSCI vs FTSE indices). So I suppose the effect of Vanguard's efficiencies (although I certainly do believe in them) are not strong enough to overcome the other minutiae that differ between them, although for a difference as large as 1.85% this should not be surprising. Wish I knew where to look up tracking error directly.

https://yhoo.it/2n5K7ds
The tax efficiencies jhfenton and others (including myself) are discussing will never show up in a Morningstar growth chart (the more correct chart than the price chart you linked to). That is of course because the growth charts all show pre-tax returns.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Jack FFR1846 » Fri Aug 03, 2018 12:53 pm

Boy, I'm thinking about it. But I'll let the dust settle a bit. I'm currently in VTMGX, developed international as my only Vanguard fund. I want no international small caps so this works. Of course one of the two zero funds is a perfect match.

The other would be to do a swap within Fidelity from FSTVX to FZROX. Was ready to pull the trigger on that this morning, but thought letting it sit for a week couldn't hurt. Going from 0.035% to 0.015% is a nice start.

$300 bucks a year savings if I do that which brings my annual ER cost on $2.3MM to $500 or 0.022%
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by finagle » Fri Aug 03, 2018 1:45 pm

So the new 0%er fund FZILX is equivalent to Vanguard FTSE All-World, Ex-U.S. Index Fund (VFWAX), which is equivalent to Fidelity® Global ex US Index (FSGDX).

The new 0% fund FZILX is not equivalent to Boglehead's fave Vanguard Total Intl Stock Index (VTIAX).

VTIAX's Fido equivalent is Fidelity® Total Intl Index (FTIPX, started in 2016).

In taxable brokerage, I have $40k in Fidelity® International Index (FSIVX), which is equivalent to Vanguard Developed Markets Index (VTMGX).

I'm unhappy that FSIVX is not a "total complete international". Since there are now no more minimums, I think I'll do my regular monthly $500 DCA into Fidelity® Total Intl Index (FTIPX), equivalent to VTIAX, instead of the "developed Europe+ developed Asia only" FSIVX. But I won't sell any FSIVX.

Like at least 1 person upthread, I don't want to dip my toes in the new 0%er fund FZILX until it's at least 1 years old.

If anyone has a preference, let me know FTIPX or FSGDX or FSIVX and why. Fido's Intl indexes are confusing and now they've added the fourth 0%er FZILX. Sheesh.

https://www.fidelity.com/bin-public/060 ... esting.pdf
https://www.fidelity.com/about-fidelity ... -investors

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Re: Fidelity lowers Expenses on existing Funds

Post by JamalJones » Fri Aug 03, 2018 1:47 pm

Still sticking with Vanguard. Plus, you can now buy Schwab, Black Rock, etc. ETFs commision free at Vanguard. And I'm sure Vanguard will lower their ERs at some point in the near future anyway.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by msi » Fri Aug 03, 2018 1:53 pm

Do we know how many stocks are in FZROX?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by FIREchief » Fri Aug 03, 2018 1:57 pm

jhfenton wrote:
Fri Aug 03, 2018 11:56 am
It's the patent that is discussed above. Vanguard's index mutual funds have an ETF share class that allows them to use the ETF mechanism to off-load high-basis securities without realizing capital gains inside the funds. If you look at Vanguard's index mutual funds, they never distribute capital gains, whereas the equivalent Fidelity and Schwab funds do.
Did you mean to say "low-basis securities?" (i.e. those with significant capital gains)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jhfenton » Fri Aug 03, 2018 2:01 pm

FIREchief wrote:
Fri Aug 03, 2018 1:57 pm
jhfenton wrote:
Fri Aug 03, 2018 11:56 am
It's the patent that is discussed above. Vanguard's index mutual funds have an ETF share class that allows them to use the ETF mechanism to off-load high-basis securities without realizing capital gains inside the funds. If you look at Vanguard's index mutual funds, they never distribute capital gains, whereas the equivalent Fidelity and Schwab funds do.
Did you mean to say "low-basis securities?" (i.e. those with significant capital gains)
Yes. That. :oops: :beer

That's what happens when I'm working on too many things at once.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jalbert » Fri Aug 03, 2018 2:04 pm

PrettyCoolWorkshop wrote:
Fri Aug 03, 2018 11:29 am
I took the opportunity today to tax-loss-harvest out of IXUS and into FZILX. I welcome the dawn of the new era, where the finance industry stops making us pay them, and just lets us pay ourselves instead!
You are still paying them. ER does not account for all of your costs. It is just the part of your costs that are transparent. With the zero series funds, none of your costs are transparent.
Risk is not a guarantor of return.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jalbert » Fri Aug 03, 2018 2:07 pm

Jack FFR1846 wrote:
Fri Aug 03, 2018 12:53 pm
Boy, I'm thinking about it. But I'll let the dust settle a bit. I'm currently in VTMGX, developed international as my only Vanguard fund. I want no international small caps so this works.
VTMGX currently includes small-caps. They were added at the same time Canadian equities were added.
Risk is not a guarantor of return.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Barry Barnitz » Fri Aug 03, 2018 2:09 pm

triceratop wrote:
Wed Aug 01, 2018 12:48 pm
Here is the cut that Fidelity has taken from some of their funds (look at the SAI for a fund):

Image

So for Total Stock Market about 40% of the return goes to investors who take 100% of the risk. Sweet deal, I'm sure Fidelity is loving this PR! :twisted:
Here are the security lending figures for the Vanguard Total Stock Market Index (taken from the 2018 Statement of Additional Information for the fund):

Code: Select all

Total Stock Market Index Fund Gross income from securities lending activities: $118,979,803 
    Fees paid to securities lending agent from a revenue split: $0 
    Fees paid for any cash collateral management service:  $124,699 
    Administrative fees not included in revenue split: $1,892,495
    Indemnification fee not included in revenue split: $0 
    Rebate (paid to borrower): $7,192,371 
    Other fees not included in revenue split (specify): $0
Aggregate fees/compensation for securities lending activities $9,209,565 
Net income from securities lending activities $109,770,238
regards,
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Spirit Rider » Fri Aug 03, 2018 2:24 pm

For values you can compare for Total Market, I get Vanguard ~= 1.5 bps net and Fidelity ~= 2 bps net.

The higher basis points I saw before must have been gross not net basis.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by retiringwhen » Fri Aug 03, 2018 2:27 pm

Edited to add Vanguard Paper reference....

Barry Barnitz wrote:
Fri Aug 03, 2018 2:09 pm
triceratop wrote:
Wed Aug 01, 2018 12:48 pm
Here is the cut that Fidelity has taken from some of their funds (look at the SAI for a fund):

Image

So for Total Stock Market about 40% of the return goes to investors who take 100% of the risk. Sweet deal, I'm sure Fidelity is loving this PR! :twisted:
Here are the security lending figures for the Vanguard Total Stock Market Index (taken from the 2018 Statement of Additional Information for the fund):

Code: Select all

Total Stock Market Index Fund Gross income from securities lending activities: $118,979,803 
    Fees paid to securities lending agent from a revenue split: $0 
    Fees paid for any cash collateral management service:  $124,699 
    Administrative fees not included in revenue split: $1,892,495
    Indemnification fee not included in revenue split: $0 
    Rebate (paid to borrower): $7,192,371 
    Other fees not included in revenue split (specify): $0
Aggregate fees/compensation for securities lending activities $9,209,565 
Net income from securities lending activities $109,770,238
regards,
So to summarize, this example shows the Fidelity siphons off to various sources 60% of the lending revenue vs. VAnguard’s 10% on similar funds.

Now the question is, how much does Fidelity Pocket? I my guess is most of the idfference, about 50%.

I believe livesoft may have come up with that number previously. I also think Vanguard published similar numbers in the past.

That is material at the minute level we are analyzing. (probably a couple of basis points)...

The following paper from 2016 by vanguard pegs Vanguard's costs as averaging 5% of loan revenue (largely because the reduce agency fees and employ a "value" strategy for loans...)

https://personal.vanguard.com/pdf/ISGSL.pdf

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Re: Fidelity lowers Expenses on existing Funds

Post by oldcomputerguy » Fri Aug 03, 2018 2:35 pm

I can’t help but wonder if perhaps they’ll follow up by reducing the ER on their Freedom Index target-date funds. So far they’re still at 0.14% last time I looked.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Ki_poorrichard » Fri Aug 03, 2018 2:37 pm

Impressive to say the least, an ER of 0! But, the capital gains distribution for taxable acct. is undesirable in my opinion. Regardless, it will be a game changer when or if Vanguard's patent ends.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by wrongfunds » Fri Aug 03, 2018 2:41 pm

I am little bit surprised by the rampant speculation and conspiracy theories being spouted and allow to continue. I thought forum guidelines took very dim view of such postings.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by snailderby » Fri Aug 03, 2018 3:00 pm

G-Force wrote:
Wed Aug 01, 2018 4:18 pm
bosocal wrote:
Wed Aug 01, 2018 3:17 pm
They are going to be phasing out the investor and premium classes and just combining them into one MF.
Did they say when this is going to happen?
1. This page (https://www.fidelity.com/bin-public/060 ... f_FAQs.pdf) says that "[t]he consolidation of share classes to a single low-cost share class is expected to take place in early November."

2. But the new zero ER funds will supposedly be made available on August 3, 2018.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by RootSki » Fri Aug 03, 2018 3:21 pm

I'm in for both. Why not? I had some dividend cash from mega-corp's q2 payout that I hadn't re-invested yet.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Fri Aug 03, 2018 3:31 pm

retiringwhen wrote:
Fri Aug 03, 2018 2:27 pm
Edited to add Vanguard Paper reference....

Barry Barnitz wrote:
Fri Aug 03, 2018 2:09 pm
triceratop wrote:
Wed Aug 01, 2018 12:48 pm
Here is the cut that Fidelity has taken from some of their funds (look at the SAI for a fund):

Image

So for Total Stock Market about 40% of the return goes to investors who take 100% of the risk. Sweet deal, I'm sure Fidelity is loving this PR! :twisted:
Here are the security lending figures for the Vanguard Total Stock Market Index (taken from the 2018 Statement of Additional Information for the fund):

Code: Select all

Total Stock Market Index Fund Gross income from securities lending activities: $118,979,803 
    Fees paid to securities lending agent from a revenue split: $0 
    Fees paid for any cash collateral management service:  $124,699 
    Administrative fees not included in revenue split: $1,892,495
    Indemnification fee not included in revenue split: $0 
    Rebate (paid to borrower): $7,192,371 
    Other fees not included in revenue split (specify): $0
Aggregate fees/compensation for securities lending activities $9,209,565 
Net income from securities lending activities $109,770,238
regards,
So to summarize, this example shows the Fidelity siphons off to various sources 60% of the lending revenue vs. VAnguard’s 10% on similar funds.

Now the question is, how much does Fidelity Pocket? I my guess is most of the idfference, about 50%.

I believe livesoft may have come up with that number previously. I also think Vanguard published similar numbers in the past.

That is material at the minute level we are analyzing. (probably a couple of basis points)...

The following paper from 2016 by vanguard pegs Vanguard's costs as averaging 5% of loan revenue (largely because the reduce agency fees and employ a "value" strategy for loans...)

https://personal.vanguard.com/pdf/ISGSL.pdf
I should say my initial attacks on Fidelity were probably too broad-brushed, though I maintain it's concerning only 40% of the revenue ends up in shareholder's pockets. The reason it's concerning is that you're taking risk you might not be well-compensated for. What I was possibly wrong about is that it's not clear that Fidelity receives any of that 60%. They claim anyway that 57% out of that 60% goes back to the borrower in the form of rebate. What they don't say is whether the borrower pays them any of that money.

The one thing they have been clear about is that no kickback scheme is in place for the Fidelity ZERO funds.

It is true that Fidelity has a much more aggressive lending practice: I looked at the ratio of gross securities lending revenue to net assets for the Fidelity and Vanguard Total Stock Market. Fidelity's ratio was ~3.4x higher (yes that is a ratio of ratios). It's possible that they're doing so much lending of not-very-scarce securities that they cannot strike as good a deal with the borrowers as Vanguard can. I'm not sure of the market structure of such deals and I'm definitely not an expert but that seems plausible to account for some of it.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Fri Aug 03, 2018 3:32 pm

wrongfunds wrote:
Fri Aug 03, 2018 2:41 pm
I am little bit surprised by the rampant speculation and conspiracy theories being spouted and allow to continue. I thought forum guidelines took very dim view of such postings.
Please report any violations of forum policy that you see using the "Report" button at the top-right of each post. Thanks!
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Angst » Fri Aug 03, 2018 3:35 pm

retiringwhen wrote:
Fri Aug 03, 2018 2:27 pm
Edited to add Vanguard Paper reference....
Barry Barnitz wrote:
Fri Aug 03, 2018 2:09 pm
triceratop wrote:
Wed Aug 01, 2018 12:48 pm
Here is the cut that Fidelity has taken from some of their funds (look at the SAI for a fund):

Image

So for Total Stock Market about 40% of the return goes to investors who take 100% of the risk. Sweet deal, I'm sure Fidelity is loving this PR! :twisted:
Here are the security lending figures for the Vanguard Total Stock Market Index (taken from the 2018 Statement of Additional Information for the fund):

Code: Select all

Total Stock Market Index Fund Gross income from securities lending activities: $118,979,803 
    Fees paid to securities lending agent from a revenue split: $0 
    Fees paid for any cash collateral management service:  $124,699 
    Administrative fees not included in revenue split: $1,892,495
    Indemnification fee not included in revenue split: $0 
    Rebate (paid to borrower): $7,192,371 
    Other fees not included in revenue split (specify): $0
Aggregate fees/compensation for securities lending activities $9,209,565 
Net income from securities lending activities $109,770,238
regards,
So to summarize, this example shows the Fidelity siphons off to various sources 60% of the lending revenue vs. VAnguard’s 10% on similar funds.

Now the question is, how much does Fidelity Pocket? I my guess is most of the idfference, about 50%.

I believe livesoft may have come up with that number previously. I also think Vanguard published similar numbers in the past.

That is material at the minute level we are analyzing. (probably a couple of basis points)...

The following paper from 2016 by vanguard pegs Vanguard's costs as averaging 5% of loan revenue (largely because the reduce agency fees and employ a "value" strategy for loans...)

https://personal.vanguard.com/pdf/ISGSL.pdf
Thank you triceratop and Barry Barnitz for posting from the most recent SAI reports for Fidelity and Vanguard, and to retiringwhen for comparing the numbers between the two. The comparative metrics from these reports that I particularly like are as follows:

Of "Gross income from securities lending activities", Vanguard returned 92% to shareholders while Fidelity only returned 39%.

Once again, there's a lot more to choosing between two very low ER index funds than just picking the lowest ER. As so many of us have been trying to remind others:
Angst wrote:
Thu Aug 02, 2018 1:00 pm
Things such as the following can do and likely will continue to easily subsume a few basis points:
  • Tracking Error
  • Capital Gains
  • Securities lending
  • Mutual Ownership Structure

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by PhilosophyAndrew » Fri Aug 03, 2018 3:55 pm

Angst, identifying factors like you do is important, but only takes us so far.

To understand the extent to which the reduction in ER helps investors reduce total investing costs, it would be helpful to quantify the comparative significance of these factors against the reduced ERs.

This can’t be done in some cases — for example, it would be rank speculation to try to predict the directoon of any tracking errors, much less their magnitude.

It seems that we should be able to quantify the significance of the differences in lending expenses you describe. We know that both firms return net lending income into their funds, but we also know that Fidelity incurs significantly higher lending expenses and so returns proportionally less of its total lending income.

My question: Has anyone measured how great a financial difference this makes, and do we understand how this difference compares to the difference in ERs?

Andy.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by KnowNth » Fri Aug 03, 2018 3:57 pm

I am very confused now. In an earlier post, you replied to me:
triceratop wrote:
Wed Aug 01, 2018 6:25 pm

I may have been mistaken about this. Fidelity claims that 100% of net securities lending revenue goes to the fund.
But in the latest post, you maintain your concerning that only 40% of the revenue ends up in shareholder's pockets. So is it 40% or 100%?


I compared SP 500 index fund from Fidelity and Vanguard, the 1, 3, 5, 10 year returns are

16.20% 12.48% 13.08% 10.63% (fidelity)
16.20% 12.48% 13.08% 10.65% (vanguard)

Do these funds not having lending practices or the practices not big enough to impact the performance?

Thanks.



triceratop wrote:
Fri Aug 03, 2018 3:31 pm

I should say my initial attacks on Fidelity were probably too broad-brushed, though I maintain it's concerning only 40% of the revenue ends up in shareholder's pockets. The reason it's concerning is that you're taking risk you might not be well-compensated for. What I was possibly wrong about is that it's not clear that Fidelity receives any of that 60%. They claim anyway that 57% out of that 60% goes back to the borrower in the form of rebate. What they don't say is whether the borrower pays them any of that money.

The one thing they have been clear about is that no kickback scheme is in place for the Fidelity ZERO funds.

It is true that Fidelity has a much more aggressive lending practice: I looked at the ratio of gross securities lending revenue to net assets for the Fidelity and Vanguard Total Stock Market. Fidelity's ratio was ~3.4x higher (yes that is a ratio of ratios). It's possible that they're doing so much lending of not-very-scarce securities that they cannot strike as good a deal with the borrowers as Vanguard can. I'm not sure of the market structure of such deals and I'm definitely not an expert but that seems plausible to account for some of it.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by LadyGeek » Fri Aug 03, 2018 4:02 pm

I merged bligh's thread into the on-going discussion.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by oldcomputerguy » Fri Aug 03, 2018 4:23 pm

Chrono Triggered wrote:
Thu Aug 02, 2018 10:11 pm
Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm
Until Vanguard's patent(s) expire.
When do they expire?
According to uspto.gov, the patent in question (#6879964, "Investment company that issues a class of conventional shares and a class of exchange-traded shares in the same fund", assuming this is the relevant patent) was applied for on March 7, 2001 and granted on April 12, 2005. Wikipedia says that utility patents filed on or after June 8, 1995 have a term of 20 years from earliest date of application. Based on that, it looks like the patent in question runs out in March of 2021.

Disclaimer: IANAL and could very easily be wrong.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Nate79 » Fri Aug 03, 2018 4:38 pm

Somewhat the percentage that Fidelity, Vanguard or Schwab returns to the fund of lending revenue isn't what is important. What is important is the absolute amount of revenue returned to the fund's bottom line as compared to the total fund assets.

For Vanguard VTSAX fund family they made about 0.017% net income off of total assets as lending revenue
For Schwab SCHB they made about 0.013% net income off of total assets as lending revenue.
For Fidelity FSTVX fund family they made about 0.024% net income off of total assets as lending revenue.

All this according to the annual reports of each fund. I was a little surprised Schwab was so low. I wonder if this means Fidelity is more aggressive at securities lending?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jalbert » Fri Aug 03, 2018 4:40 pm

Spirit Rider wrote:
Fri Aug 03, 2018 2:24 pm
For values you can compare for Total Market, I get Vanguard ~= 1.5 bps net and Fidelity ~= 2 bps net.

The higher basis points I saw before must have been gross not net basis.
Vanguard is also more conservative in their securities lending, so it is actually possible that Fidelity takes 60% of the securities lending revenue and still generates more revenue for the fund, by taking (and exposing fund investors) to more risk.
Risk is not a guarantor of return.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Fri Aug 03, 2018 4:52 pm

Nate79 wrote:
Fri Aug 03, 2018 4:38 pm
Somewhat the percentage that Fidelity, Vanguard or Schwab returns to the fund of lending revenue isn't what is important. What is important is the absolute amount of revenue returned to the fund's bottom line as compared to the total fund assets.

For Vanguard VTSAX fund family they made about 0.017% net income off of total assets as lending revenue
For Schwab SCHB they made about 0.013% net income off of total assets as lending revenue.
For Fidelity FSTVX fund family they made about 0.024% net income off of total assets as lending revenue.

All this according to the annual reports of each fund. I was a little surprised Schwab was so low. I wonder if this means Fidelity is more aggressive at securities lending?
It does show you Fidelity is more aggressive but it doesn't tell you how much more aggressive. The way you determine how aggressive they are is by comparing the ratios of gross (not net) securities revenue to net assets. This post of mine stated that Fidelity is about 3.4x as aggressive as Vanguard when you look at this metric.

I do think the percentage they return to the fund is important, because you take risk for every unit of gross revenue and it affects your risk-adjusted return how many of those units go back to the fund.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by UpperNwGuy » Fri Aug 03, 2018 4:53 pm

I am surprised to see that such a large number of Boglehead forum members view the Fidelity announcement with suspicion and negativity. I can't figure out whether their reaction is due to some specific sin that Fidelity committed in the past, or whether it is merely a protective fondness for Vanguard's governance structure and patented method for handling mutual fund capital gains. I have never previously done business with Fidelity. My accounts are with Vanguard and Schwab. Fidelity's announcement is making me curious to give them a chance as well. I'll probably wait until early 2019 to do so, but I like what I see so far.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Fri Aug 03, 2018 4:54 pm

KnowNth wrote:
Fri Aug 03, 2018 3:57 pm
I am very confused now. In an earlier post, you replied to me:
triceratop wrote:
Wed Aug 01, 2018 6:25 pm

I may have been mistaken about this. Fidelity claims that 100% of net securities lending revenue goes to the fund.
But in the latest post, you maintain your concerning that only 40% of the revenue ends up in shareholder's pockets. So is it 40% or 100%?
It is not inconsistent to state that 100% of net securities lending goes to a fund and also that 40% of gross revenue ends goes to the fund. The difference between gross and net here includes 57% of that gross revenue going back to the borrower in the form of rebates. Vanguard in contrast manages to keep this number as low as 6%.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by UpperNwGuy » Fri Aug 03, 2018 4:58 pm

UpperNwGuy wrote:
Fri Aug 03, 2018 4:53 pm
I am surprised to see that such a large number of Boglehead forum members view the Fidelity announcement with suspicion and negativity. I can't figure out whether their reaction is due to some specific sin that Fidelity committed in the past, or whether it is merely a protective fondness for Vanguard's governance structure and patented method for handling mutual fund capital gains. I have never previously done business with Fidelity. My accounts are with Vanguard and Schwab. Fidelity's announcement is making me curious to give them a chance as well. I'll probably wait until early 2019 to do so, but I like what I see so far.
I might add that I have never seen forum members show such a fascination with:
— securities lending, or
— index tracking.

It seems like grasping at straws to cast suspicion on Fidelity.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by lostdog » Fri Aug 03, 2018 4:59 pm

I decided I'm going to stay the course with Vanguard Total World Index. Hopefully the price war continues and we see admiral shares of this fund.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Silence Dogood » Fri Aug 03, 2018 5:37 pm

Hopefully Vanguard will, at the very least, respond to this by merging the investor and admiral share classes of some of their "core" funds (Total Stock, Total International Stock, Total Bond, Total International Bond).

This would benefit me because it would lower the cost of my Target Retirement fund.

Target Retirement 2055 Fund (VFFVX): 0.15%
If investor and admiral share classes were merged: 0.07%

(0.54 * .14) + (0.36 * .17) + (0.07 * .09) + (0.03 * 0.13) = 0.147
(0.54 * .04) + (0.36 * .11) + (0.07 * .05) + (0.03 * 0.11) = 0.068

Of course, I've been hoping for this for a while now...

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