"Don't Obsess About Expense Ratios"

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corn18
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Re: "Don't Obsess About Expense Ratios"

Post by corn18 » Tue Aug 07, 2018 7:00 am

The next really big move by FIDO would be to go truly mutual like Vanguard. Then John Bogle will know he has changed the world.
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Big Dutch
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Re: "Don't Obsess About Expense Ratios"

Post by Big Dutch » Tue Aug 07, 2018 7:01 am

Captain kangaroo wrote:
Mon Aug 06, 2018 6:40 pm
Pre-Fidelity announcement:

"Lowest expense ratio possible is essential!"

Post-Fidelity announcement:

"Actually, don't worry about them! Stay with Vanguard!"
+1

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Re: "Don't Obsess About Expense Ratios"

Post by TravelGeek » Tue Aug 07, 2018 8:39 am

corn18 wrote:
Tue Aug 07, 2018 7:00 am
The next really big move by FIDO would be to go truly mutual like Vanguard. Then John Bogle will know he has changed the world.
Maybe Jack could send the Johnsons an autographed copy of “Enough” :)

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corn18
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Re: "Don't Obsess About Expense Ratios"

Post by corn18 » Tue Aug 07, 2018 8:43 am

TravelGeek wrote:
Tue Aug 07, 2018 8:39 am
corn18 wrote:
Tue Aug 07, 2018 7:00 am
The next really big move by FIDO would be to go truly mutual like Vanguard. Then John Bogle will know he has changed the world.
Maybe Jack could send the Johnsons an autographed copy of “Enough” :)
We really need a like button on these fora.
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Re: "Don't Obsess About Expense Ratios"

Post by marcopolo » Tue Aug 07, 2018 8:48 am

TravelGeek wrote:
Tue Aug 07, 2018 8:39 am
corn18 wrote:
Tue Aug 07, 2018 7:00 am
The next really big move by FIDO would be to go truly mutual like Vanguard. Then John Bogle will know he has changed the world.
Maybe Jack could send the Johnsons an autographed copy of “Enough” :)
While i am a big fan of passive investing, I am really glad Fidelity is a profit making entity.
I believe that is one of the reasons they have so much better customer service.

I find it a bit curious that on a board that has so much interest in the equity markets thriving, that there seems to be so much disdain for a company trying to make a profit.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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corn18
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Re: "Don't Obsess About Expense Ratios"

Post by corn18 » Tue Aug 07, 2018 8:52 am

marcopolo wrote:
Tue Aug 07, 2018 8:48 am
TravelGeek wrote:
Tue Aug 07, 2018 8:39 am
corn18 wrote:
Tue Aug 07, 2018 7:00 am
The next really big move by FIDO would be to go truly mutual like Vanguard. Then John Bogle will know he has changed the world.
Maybe Jack could send the Johnsons an autographed copy of “Enough” :)
While i am a big fan of passive investing, I am really glad Fidelity is a profit making entity.
I believe that is one of the reasons they have so much better customer service.

I find it a bit curious that on a board that has so much interest in the equity markets thriving, that there seems to be so much disdain for a company trying to make a profit.
No disdain for companies making a profit. Just don't like the value proposition of the financial sector in general. They add no value. They extract profits from the investor. Read John Bogle's book, Enough. It lays it out better than I ever could.
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Re: "Don't Obsess About Expense Ratios"

Post by marcopolo » Tue Aug 07, 2018 9:15 am

corn18 wrote:
Tue Aug 07, 2018 8:52 am
marcopolo wrote:
Tue Aug 07, 2018 8:48 am
TravelGeek wrote:
Tue Aug 07, 2018 8:39 am
corn18 wrote:
Tue Aug 07, 2018 7:00 am
The next really big move by FIDO would be to go truly mutual like Vanguard. Then John Bogle will know he has changed the world.
Maybe Jack could send the Johnsons an autographed copy of “Enough” :)
While i am a big fan of passive investing, I am really glad Fidelity is a profit making entity.
I believe that is one of the reasons they have so much better customer service.

I find it a bit curious that on a board that has so much interest in the equity markets thriving, that there seems to be so much disdain for a company trying to make a profit.
No disdain for companies making a profit. Just don't like the value proposition of the financial sector in general. They add no value. They extract profits from the investor. Read John Bogle's book, Enough. It lays it out better than I ever could.
Cost have been steadily coming down for retail investors. I give a lot of credit to Bogle and Vanguard for making that happen. Even just since "Enough" was published, cost have dropped noticeably.

My weighted ER is about 7 basis points. About quarter of my positions are in iShares ETF, so, I suspect Fidelity is only getting a small fraction of that. They also get a little bit from their portion of security lending profits.
With the new drop in their ERs, next years cost will be even less. So, they are not extracting much profit from me.

As for value, I have to invest somewhere, I have tried several brokerages, my experience is that Fidelity has top notch customer service. They also do all the book keeping and accounting for my positions, buy and sell individual securities to keep track with index composition, they track my basis.
I think about how many hours of work all that would entail if i were to do it on my own, I wish many of the other services i purchase were that cost effective.

They also give me a free copy of Turbo tax every year :sharebeer
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: "Don't Obsess About Expense Ratios"

Post by qwertyjazz » Tue Aug 07, 2018 9:25 am

triceratop wrote:
Mon Aug 06, 2018 6:47 pm
Captain kangaroo wrote:
Mon Aug 06, 2018 6:40 pm
Pre-Fidelity announcement:

"Lowest expense ratio possible is essential!"

Post-Fidelity announcement:

"Actually, don't worry about them! Stay with Vanguard!"
People have been using this strawman a lot, but they never cite who in the present discussions actually said it. I at least have pointed out on numerous occasions that total cost is a better metric: tracking error and tax efficiency.
Strawman not exactly - the question of costs not mattering has IMO been a difficult multi-year transition for a lot of people

viewtopic.php?f=10&t=192276&p=4051476#p4051476

But yes you have been one of the more balanced voices. There is definitely though a stickiness with heuristics and that might play a role.
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Re: "Don't Obsess About Expense Ratios"

Post by Reb Tevye » Tue Aug 07, 2018 9:29 am

Bait and switch?
Marketing ploy?

I dunno. Here is a customer-focused bank that used a similar strategy.

https://view.yahoo.com/show/saturday-ni ... nge-bank-2
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corn18
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Re: "Don't Obsess About Expense Ratios"

Post by corn18 » Tue Aug 07, 2018 9:34 am

I wonder what value we are all getting for their $5.3B in profits last year? That's a 29% take that they could be passing on to investors instead of shareholders (whoever they are). The Johnsons are getting very rich off the backs of the average joe investor.

Make FIDO a mutual company like Vanguard. The only people getting really rich are the individual investors.

"Fidelity said the fee changes will save shareholders approximately $47 million annually." "In 2017, Boston-based Fidelity reported $18.2 billion in revenue, up 14% from the prior year, and $5.3 billion in operating income, a 54% year-over-year increase"
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TravelGeek
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Re: "Don't Obsess About Expense Ratios"

Post by TravelGeek » Tue Aug 07, 2018 9:44 am

marcopolo wrote:
Tue Aug 07, 2018 8:48 am
While i am a big fan of passive investing, I am really glad Fidelity is a profit making entity.
I believe that is one of the reasons they have so much better customer service.

I find it a bit curious that on a board that has so much interest in the equity markets thriving, that there seems to be so much disdain for a company trying to make a profit.
Please forgive me for liking the company I co-own better than the Johnsons’ company :)

I don’t have disdain for them creating a good and profitable company, though. I reserve my disdain for Mr. Jones :) (I actually don’t know anything about the founder of Edward Jones, so my disdain may have to be directed at others at the company)

My wife and I both have accounts with Fidelity and Vanguard. I haven’t been unhappy with Fidelity at all, but I also have had no customer experience issues with Vanguard so far (perhaps because I really haven’t had a need for customer service in over 20 years). I now live about 150 miles from the nearest Fidelity office, so the money they spend on maintaining local presences doesn’t benefit me.

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Re: "Don't Obsess About Expense Ratios"

Post by retiredjg » Tue Aug 07, 2018 10:14 am

I think these funds are bait. That's OK. That is not the same thing as bait and switch...although I can see the potential for some of that to happen (not that they will change the funds but that advisors could say..."I've got this other very nice fund you should consider".

I suspect it is mostly a bait and add on maneuver. That certainly has the potential to go off the rails as well. Or not.

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Re: "Don't Obsess About Expense Ratios"

Post by WhyNotUs » Tue Aug 07, 2018 10:37 am

I used to be with Fido and thought they were a good choice. My funds were split and I wanted them all under one umbrella for simplicity sake at VG. Nothing bad to say about Fido though. My taxable was with VG so I went with them and I liked the overall philosophy of Bogle.

Even managing an Index fund has some costs, I am prepared to pay a couple basis points. If someone wanted to give it to me for free as a marketing ploy, I would take it. In my case switching for that price does not make sense and I appreciate VGs corporate structure. Congrats to the Fido customers who are benefitting from the no fee funds.

The low cost movement is strong and that is good news for investors regardless of the source.
I own the next hot stock- VTSAX

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Re: "Don't Obsess About Expense Ratios"

Post by steve roy » Tue Aug 07, 2018 12:16 pm

JoeRetire wrote:
Mon Aug 06, 2018 7:31 pm
I'm confused.

Don't obsess about expense ratios that favor any company other than Vanguard? But obsess about expense ratios when Vanguard has the lowest?

Does show a little loyalty to your own company apply to every company? Or only Vanguard?
I’ll put your mind at ease. I’m a Boglehead and have most of my money at Vanguard. But I’ve urged DW to keep her money in the TSP because it’s cheaper. And I’ve urged friends and acquaintances who have no money in a 401(k) and have little or no investments to consider opening one in the Zero funds at Fidelity.

But I agree with White Coat Investor. If you’ve already got substantial funds at Vanguard, there’s little point in switching over a few basis points. (How many people, after all, burn extra basis points putting money in an asset allocation fund? Quite a few, including me.)

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Re: "Don't Obsess About Expense Ratios"

Post by MikeMak27 » Tue Aug 07, 2018 12:45 pm

Why is no one talking about how all of Fideity’s Other low cost index funds became cheaper as well. Their total is market index went to .015% expense ratio, their total bond index went to .025% and their total international index went to .060%. I would stay with these current funds if i were a 3 fund investor because there will be virtually no tracking error and asset management ramp up that will occur with the zero fee index funds. Once there is a decent assets under management, then I would enter the zero fee funds.
Mac 4 fund portfolio: 45% US small cap value (IJS, VBR), 40% Emerging Markets (IEMG, VWO, FPMAX), 10% long term US treasuries (TLT), 5% US REITS (VNQ)

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Re: "Don't Obsess About Expense Ratios"

Post by Dale_G » Tue Aug 07, 2018 12:52 pm

I am glad that Fido has done the zero er thing. Competition is great - and more investors will get a better deal.

But I ran the numbers for my own Total Stock Market in my taxable account. The capital gains are 68% of the holding.

If I were to sell TSM at Vanguard and buy at Fido (and pay cap gain taxes from the proceeds of the Vanguard sale) the break even would be 298 years.

If both funds had yearly gains of 5%, it would only take 270 years to break even.

A bit longer than my time horizon, so I will pass. :D

Dale
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JoeRetire
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Re: "Don't Obsess About Expense Ratios"

Post by JoeRetire » Tue Aug 07, 2018 4:08 pm

steve roy wrote:
Tue Aug 07, 2018 12:16 pm
I’ll put your mind at ease. I’m a Boglehead and have most of my money at Vanguard. But I’ve urged DW to keep her money in the TSP because it’s cheaper. And I’ve urged friends and acquaintances who have no money in a 401(k) and have little or no investments to consider opening one in the Zero funds at Fidelity.
Makes sense to me.
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Re: "Don't Obsess About Expense Ratios"

Post by CantPassAgain » Tue Aug 07, 2018 4:48 pm

All you people "calling out" Taylor need to get a grip. Yes, costs matter, but have you done the math on the $ difference between a few basis points? Being out of the market for one day of normal volatility could wipe out 20 years of whatever benefit you might get between moving from a 0.05% ER fund to a 0.00% ER fund. There are so many different, opposing forces working on what your return is going to be that obsessing over the difference of 5 basis points is ludicrous.

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Re: "Don't Obsess About Expense Ratios"

Post by UpsetRaptor » Tue Aug 07, 2018 4:50 pm

triceratop wrote:
Tue Aug 07, 2018 12:43 am
I’m afraid not. Do you have evidence for your assertion? By the way I never said they weren’t tax efficient — they are! But the question is tax efficiency relative to Vanguard. Fidelity Spartan funds regularly pay out capital gains distributions. To confirm this go to the fund page and look at the “distributions and fees” tab. Vanguard funds almost never pay out capital gains.
So if you have your money in a taxable account at Vanguard that makes sense, but then again you're probably sitting on LTCG at this point, so you probably already wouldn't consider moving the funds for that reason.

However, if one has an IRA or some other tax-deferred growth account at Vanguard and could switch for free to Fido, are there any legitimate reasons not to do so at this point? "It's not a huge difference" is true but hey a case of beer is a case of beer.

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Re: "Don't Obsess About Expense Ratios"

Post by triceratop » Tue Aug 07, 2018 4:51 pm

UpsetRaptor wrote:
Tue Aug 07, 2018 4:50 pm
triceratop wrote:
Tue Aug 07, 2018 12:43 am
I’m afraid not. Do you have evidence for your assertion? By the way I never said they weren’t tax efficient — they are! But the question is tax efficiency relative to Vanguard. Fidelity Spartan funds regularly pay out capital gains distributions. To confirm this go to the fund page and look at the “distributions and fees” tab. Vanguard funds almost never pay out capital gains.
So if you have your money in a taxable account at Vanguard that makes sense, but then again you're probably sitting on LTCG at this point, so you probably already wouldn't consider moving the funds for that reason.

However, if one has an IRA or some other tax-deferred growth account at Vanguard and could switch for free to Fido, are there any legitimate reasons not to do so at this point? "It's not a huge difference" is true but hey a case of beer is a case of beer.
Yeah that's probably harmless to do and could easily turn out better.
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Re: "Don't Obsess About Expense Ratios"

Post by vineviz » Tue Aug 07, 2018 5:00 pm

UpsetRaptor wrote:
Tue Aug 07, 2018 4:50 pm
triceratop wrote:
Tue Aug 07, 2018 12:43 am
I’m afraid not. Do you have evidence for your assertion? By the way I never said they weren’t tax efficient — they are! But the question is tax efficiency relative to Vanguard. Fidelity Spartan funds regularly pay out capital gains distributions. To confirm this go to the fund page and look at the “distributions and fees” tab. Vanguard funds almost never pay out capital gains.
So if you have your money in a taxable account at Vanguard that makes sense, but then again you're probably sitting on LTCG at this point, so you probably already wouldn't consider moving the funds for that reason.

However, if one has an IRA or some other tax-deferred growth account at Vanguard and could switch for free to Fido, are there any legitimate reasons not to do so at this point? "It's not a huge difference" is true but hey a case of beer is a case of beer.
I'd say the best reason not to do this is that there is only about a 50/50 chance that you'll end up ahead in the end. Over the range of ERs we're discussing, a lower ER doesn't translate very well into higher returns. You might end up a little ahead with the Fidelity funds, but you are just as likely to end up a little behind.
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Re: "Don't Obsess About Expense Ratios"

Post by Dandy » Tue Aug 07, 2018 5:04 pm

If the funds you are interested in turn out to be lower at Fidelity, especially with tax advantaged assets, there is not a great reason not to move to Fidelity. They seem to be ahead of Vanguard on service ratings even on this forum.

The concerns I have are that I may want funds that aren't zero ER at Fidelity and they may have higher ERs than VG which would mitigate the savings, Fidelity might not make enough money securities lending and have to stop having a loss leader approach and revert to some very modest ER, and the hassle lack of simplicity of moving tax advantaged to Fidelity and leaving taxable at Vanguard.

So, I will continue with Vanguard but keep an eye on these developments.

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Re: "Don't Obsess About Expense Ratios"

Post by Counterpoint » Tue Aug 07, 2018 10:15 pm

UpsetRaptor wrote:
Tue Aug 07, 2018 4:50 pm
So if you have your money in a taxable account at Vanguard that makes sense, but then again you're probably sitting on LTCG at this point, so you probably already wouldn't consider moving the funds for that reason.

However, if one has an IRA or some other tax-deferred growth account at Vanguard and could switch for free to Fido, are there any legitimate reasons not to do so at this point? "It's not a huge difference" is true but hey a case of beer is a case of beer.
The choices in terms of index funds are fewer at Fidelity than at Vanguard (22 versus 62 based on a quick check). For instance if you want a ex-US small cap stock index fund, Vanguard has one but not Fidelity. Vanguard is more committed to indexing as a philosophy than is Fidelity, so I would imagine that there would always be a difference in terms of the range of offerings.

With Vanguard you know that their incentives are much more aligned with yours. With Fidelity they are not, so you have to watch your back. It's a little bit like the difference between your credit union and a commercial bank.

But this is what market competition is all about. Hopefully it will spur Vanguard to start offering customer service on weekends like I believe Fidelity does - that to my family members who are new to investing would be more important than a couple of basis points.

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Re: "Don't Obsess About Expense Ratios"

Post by MNS CA » Tue Aug 07, 2018 11:02 pm

TravelGeek wrote:
Tue Aug 07, 2018 12:57 am
willthrill81 wrote:
Tue Aug 07, 2018 12:46 am

I don't need customer service. I do everything online, and it's very easy to use Vanguard to do what I do. On the rare occasion that I've needed to contact Vanguard's staff for some reason, they've been fine.
That is my experience as well. I have never called VG or Fidelity in over 20 years of account ownership. I once walked into a Fidelity Office. Don’t exactly recall why. I suspect they both will generally offer acceptable service if I need it.

My gut feel is that these new funds are a gimmick. The Johnsons still want to make money when I invest money with Fidelity. I am okay with that, but I credit Vanguard with driving the costs down and will keep the bulk of our investments there. No point in paying capital gains to switch and no point in adding complexity (additional fund) for new investments, especially considering the data in the WCI post.
There's one gimmicky aspect of the funds--they don't have small cap, just mid and large cap. So they're basically not that much better than S&P 500 funds, and not a standalone competitor to a total market fund.

To get total market, you'd need to combine the free funds with a small cap fund, which would have a somewhat higher expense ratio, especially if you want small cap value. I think if you do everything through fidelity, you might not end up with a weighted average expense ratio (for free fund + small cap fund) that's not much lower than their total market funds (which might include some small cap).

To save money on licensing fees, Fidelity also came up with their own index. Fidelity discloses that it might use an affiliate company to execute trades on behalf of the funds (and thereby pay fees to affiliates), but only if their pricing isn't any worse than competitors.

I'd be a little bit worried if the index changes more often and they need to incur more in trading costs, but otherwise these free funds seem like a great substitute for an S&P 500 fund, especially in a brokerage account.

I don't buy the "bait and switch" story about fees--expense ratios have been going down, not up. No way fidelity starts charging an expense ratio on these funds.

And yes, Vanguard is more tax efficient, but in a tax-free retirement account (401(K), 403(b), IRA), 529), it sounds like Fidelity beats Schwab and Vanguard.

Anyone know why fidelity funds have been lagging similar vanguard funds even though expense ratios are comparable or lower for Fidelity? Is it because they are tracking slightly different indexes?

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Re: "Don't Obsess About Expense Ratios"

Post by bost » Tue Aug 07, 2018 11:19 pm

With FSTMX already at 0.015%, the cost was already down to $150 per $1 million. So this is a fairly small loss-leader to bring folks into fidelity brokerage (since unlike FSTMX, you cannot buy through other brokers).

And once you have a fidelity brokerage account, hey maybe we can interest you in the 2% cash back visa card? Or a cash management account?

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Re: "Don't Obsess About Expense Ratios"

Post by Majormajor78 » Wed Aug 08, 2018 10:01 am

The one thing that really used to bother me at Fidelity was their tracking error which was ridiculously high on a couple of their Spartan funds. I used to own Fidelity® Global ex U.S. Index Fund - Premium Class FSGDX but bailed that fund a few years ago because I felt it wasn't competently run.

2012 FSGDX 17.69% MSCI AC Wld exUS (Net MA) 16.98%
A tracking error of +71 basis points

2013 FSGDX 14.18% MSCI AC Wld exUS (Net MA) 15.42%
A tracking error of -124 basis points

2014 FSGDX -4.40% MSCI AC Wld exUS (Net MA) -3.74%
A tracking error of -66 basis points

2015 FSGDX -5.72% MSCI AC Wld exUS (Net MA) -5.54%
A tracking error of -18 basis points

2016 FSGDX 4.64% MSCI AC Wld exUS (Net MA) 4.68%
A tracking error of -4 basis points

2017 FSGDX 27.35 MSCI AC Wld exUS (Net MA) 27.40%
A tracking error of -4 basis points
(source is fidelity's own website: https://fundresearch.fidelity.com/mutua ... /316146141)

Seriously!!!? Beating the index by .71%! Losing to the index by 1.24%!!!! I've heard of active funds being accused of being closet indexers but this fund used to operate like a closet active fund.

To be fair it looks like they've gotten their act together the past couple of years and this example was the worst that I'm aware of out of their Spartans, some of which track quite well indeed. But it taught me a powerful lesson. Slapping the word index at the end of a funds name and lowering the ER does NOT make it a good fund. Hopefully these new funds will launch without the growing pains this fund experienced.

To the sarcastic ones noting that Bogleheads can't seem to carry the same tune: Yes, costs matter. A lot. But it is only one of several facets that go into creating a good fund and crafting a good portfolio overall.

I have our retirement accounts split pretty evenly between Vanguard and Fidelity. I'm reasonably happy with most of our Spartan funds and the platform at Fidelity. I'm also quite happy with the experienced management at Vanguard and their proven history of running index funds very well and at cost. I'm not going to be moving money around based on costs that are less than a handful basis points. Just being out of the market for a couple of days to execute a transfer could cost you (or gain for you) a hundred or more basis points easily. At a 4 basis point savings that would take 25 years to make up!?
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."

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Re: "Don't Obsess About Expense Ratios"

Post by Broken Man 1999 » Wed Aug 08, 2018 11:15 am

I suppose in a year or two we will have some data supporting the move to Fidelity Zeros or not.

IMHO, the real bottom line will be how much money you made , or how little money did you lose, as you can't spend ERs. The amount earned will be affected by the various expense components, and how the Fidelity Zeros perform via their internally designed indexes. Their index might outperform the various indexes used by other firms, or they might not.

The zero ERs are great. My guess is the free riders will enjoy the opportunity. I believe Fidelity will get $$$ from others. But that strategy in my mind is no different than reward credit cards. Those of us who pay no interest get the rewards supported by those who pay interest.

Some people are early adaptors, some people aren't (I'm not).

However, I am not against change that is better. Until the new funds have a track record, I wouldn't consider using them. If they end up proving to be superior, I would certainly consider investing in them, assuming the efforts would be worthwhile. Inertia (laziness) keeps me from chasing every nickel and dime.

Yesterday I made changes in our bond holdings. I changed from Vanguard Short-term Treasury to Vanguard Short-term Treasury Index, reducing our ER from .10% to .07%. I also changed from Vanguard Intermediate-term Treasury to Vanguard Intermediate-Term Treasury Index, reducing ERs from .10% to .07%. The change was easy, and saved a bit; the nickels and dimes were worth such an easy task. Though, I have been procrastinating about the activity for months.

Now all I have to do is decide which of the three bond funds I want to consolidate to, Total Bond, Intermediate-term bond, or Short-term bond.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Re: "Don't Obsess About Expense Ratios"

Post by Nate79 » Wed Aug 08, 2018 11:48 am

Costs matter. And Fidelities reduction in ER for a wide range of index funds, not just the zero funds is really the story here. Especially for investors early in their accumulation phase may be holding these index funds for 60+ years. Over that time period and especially as the funds reach 6 and 7 figure values the expense differences will add up. While we can expect Vanguard to eventually to reduce costs I don't believe they will catch up to the low cost leaders of Fidelity and Schwab. For tax advantage accounts these mutual fund offerings with lower costs offer investors a better choice. For taxable accounts I would use the ETF's instead.

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Re: "Don't Obsess About Expense Ratios"

Post by donaldfair71 » Wed Aug 08, 2018 12:00 pm

JustinR wrote:
Mon Aug 06, 2018 6:58 pm
I like how Bogleheads philosophy has been "all things equal, keep your expense ratios as low as possible because that's the only thing you can control and best predictor of success, it's just math!"

Then a non-Vanguard company comes out with lower fees and the forums are now full of "well actually it doesn't matter as much as you think it might..." posts.

Time to edit the wiki and reprint the books to add *unless it's not Vanguard to the costs section.
I don't get this. For quite a few years Fidelity has offered funds cheaper than Vanguard, as have Schwab. No one batted an eye when people still advocated Vanguard was still as good a choice. But now that's it's a *zero* ER, those who advocate for Vanguard are just shilling out if inertia.

If my Vanguard fund at .04 was good enough to keep in lieu of a Fidelity fund at.015, why would I jump at 0? I wouldn't move money from one fund company to the next one go from .17 to .13.

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Re: "Don't Obsess About Expense Ratios"

Post by Barry Barnitz » Wed Aug 08, 2018 12:52 pm

Hi Majormajor78:

What you are seeing in the international fund tracking error is most likely the result of fair-value pricing. Vanguard places the following explanation on their Total International Index fund webpage:


An index fund’s return may sometimes appear to diverge from the return of its benchmark index a bit more than would be expected. This may be the result of a fair-value pricing adjustment.

These adjustments, which are required by the U.S. Securities and Exchange Commission, address pricing discrepancies that may arise because of time-zone differences among global securities markets. Foreign securities may trade on exchanges that close many hours before a fund’s closing share price is calculated in the United States, generally at 4 p.m., Eastern time. In the hours between the close of the foreign market and the close of the U.S. market, the value of these foreign securities may change—for example, because of company-specific announcements or market-wide developments. Such price changes are not immediately reflected in international index values.

Fair-value pricing takes such changes into account in calculating the fund’s daily net asset value (NAV) to help ensure that the NAV doesn’t include stale prices. The result can be a temporary divergence between the return of the fund and that of its benchmark index—a difference that usually corrects itself when the foreign markets reopen.
Here are the comparable reported tracking error performance of the Vanguard Total International Stock Index fund Admiral shares:

2012 VTIAX 18.21% MSCI ACWI ex USA IMI Index 17.04%
Tracking error: +1.17

2013 VTIAX 15.14% Spliced index 15.76%
Tracking error:-0.62

2014 VTIAX -4.17% FTSE Global All Cap ex US Index -3.39%
Tracking error: +0.78

2015 VTIAX -4.26% FTSE Global All Cap ex US Index -4.29%
Tracking error: -0.03

2016 VTIAX 4.67% FTSE Global All Cap ex US Index 4.72%
Tracking error: -0.05

2017 VTIAX 27.15% FTSE Global All Cap ex US Index 27.41%
Tracking error: +0.14

regards,
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Re: "Don't Obsess About Expense Ratios"

Post by Whakamole » Wed Aug 08, 2018 1:36 pm

Counterpoint wrote:
Tue Aug 07, 2018 10:15 pm
The choices in terms of index funds are fewer at Fidelity than at Vanguard (22 versus 62 based on a quick check). For instance if you want a ex-US small cap stock index fund, Vanguard has one but not Fidelity.
The number of index funds is a bit higher than 22 - Fidelity runs some of the index funds as ETFs, particularly sector funds, and of course they have iShares ETFs.

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Re: "Don't Obsess About Expense Ratios"

Post by UpperNwGuy » Wed Aug 08, 2018 1:51 pm

MNS CA wrote:
Tue Aug 07, 2018 11:02 pm
There's one gimmicky aspect of the funds--they don't have small cap, just mid and large cap. So they're basically not that much better than S&P 500 funds, and not a standalone competitor to a total market fund.

To get total market, you'd need to combine the free funds with a small cap fund, which would have a somewhat higher expense ratio, especially if you want small cap value. I think if you do everything through fidelity, you might not end up with a weighted average expense ratio (for free fund + small cap fund) that's not much lower than their total market funds (which might include some small cap).
Why do you say that the funds don't have small cap? I just looked at the description of FZROX, the Fidelity ZERO Total Market Index Fund, and it says, "Normally investing at least 80% of its assets in common stocks included in the Fidelity U.S. Total Investable Market Index, which is a float-adjusted market capitalization-weighted index designed to reflect the performance of the U.S. equity market, including large-, mid- and small-capitalization stocks."

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Re: "Don't Obsess About Expense Ratios"

Post by Pete12 » Wed Aug 08, 2018 2:00 pm

Taylor Larimore wrote:
Mon Aug 06, 2018 3:28 pm
Bogleheads:

Jim Dahle, editor of "The White Coat Investor," has written an excellent article about Fidelity's new "no expense ratio" funds and whether Vanguard investors should move to Fidelity or Schwab. The bottom line:
If your money is already at Fidelity or Schwab and you have a simple portfolio, go ahead and use their index funds guilt-free, especially if you’re in a tax-protected account. But if your money is at Vanguard like mine, there is absolutely NO reason to switch based on trivial differences in expense ratio. And you certainly don’t want to pay any capital gains taxes to switch one way or the other. The reason that Vanguard is the biggest mutual fund company in the world is that they’ve earned the trust of millions of investors by doing the right thing over and over and over again. Are they perfect? Not even close, but ownership matters, and in the case of Vanguard, you’re the owner. Show a little loyalty to your own company. They’re still doing the right thing.
Don't Obsess About Expense Ratios

Best wishes.
Taylor
Dear Taylor,

Thank you for posting this.

"Stay the course... press on regardless!"

All my best wishes,
Pete

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Re: "Don't Obsess About Expense Ratios"

Post by WanderingDoc » Wed Aug 08, 2018 2:04 pm

Captain kangaroo wrote:
Mon Aug 06, 2018 6:40 pm
Pre-Fidelity announcement:

"Lowest expense ratio possible is essential!"

Post-Fidelity announcement:

"Actually, don't worry about them! Stay with Vanguard!"
Couldn't agree more!
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Re: "Don't Obsess About Expense Ratios"

Post by sc9182 » Wed Aug 08, 2018 2:24 pm

With the levels of loyalty, and brand stickiness Vanguard commands (see from many a readers experiences posted earlier)., why wouldnt VG raise their ERs and fees and still command inflows!?

What could Vanguard do with those extra monies? Improve website, improve trading platform/App., and most importantly strive for enhancing customer service

As for not-for-profit or mutual owned ownership structures: yes its been good for VG. Many a hospitals are non-profits too, but they ain't working/charging cheap. Also we've seen mutual type ownership structure in Insurance industry'., but those guys price nor service gappens to be best.

What gives in VG ownership structure the advantage? (such ownership structure hasn't been highly beneficial/successful in other sectors)

Hope somebody with more in-depth knowlege could answer..
Last edited by sc9182 on Wed Aug 08, 2018 2:48 pm, edited 1 time in total.

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Re: "Don't Obsess About Expense Ratios"

Post by eye.surgeon » Wed Aug 08, 2018 2:25 pm

triceratop wrote:
Mon Aug 06, 2018 7:03 pm
JustinR wrote:
Mon Aug 06, 2018 6:58 pm
I like how Bogleheads philosophy has been "all things equal, keep your expense ratios as low as possible because that's the only thing you can control and best predictor of success, it's just math!"
This is an appealing theory, but what you'll actually find are people saying "all other things are not actually equal".
The philosophy is to keep EXPENSES as low as possible, not simply expense ratios. Don't save $200 in ER fees but accrue $2000 in tax-inefficient costs. Expense ratios are important but they are not the sum total of the cost of investing.
Last edited by triceratop on Wed Aug 08, 2018 2:37 pm, edited 1 time in total.
Reason: fix quote
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Re: "Don't Obsess About Expense Ratios"

Post by CantPassAgain » Wed Aug 08, 2018 3:33 pm

Captain kangaroo wrote:
Mon Aug 06, 2018 6:40 pm
Pre-Fidelity announcement:

"Lowest expense ratio possible is essential!"

Post-Fidelity announcement:

"Actually, don't worry about them! Stay with Vanguard!"
That's a rather uncharitable knee-jerk reaction. It's more like:

"Pre-fidelity announcement:

"Keep costs low. Instead of that 1.5% actively managed stock fund in your 401K, use the 0.15% S&P500 index fund they offer. Also, you might consider moving your taxable account from Edward Jones/John Hancock/Local Bank/etc to a discount broker like Vanguard, Fidelity, Schwab, or T Rowe price to take advantage of the very low fee index funds they offer and also avoid AUM fees."

Post-fidelity announcement:

Fidelity is going to offer zero-fee index funds and is lowering the minimums on many funds. That's great! But, if you already have an account at Vanguard the difference in fees are negligible (0.04% vs 0.00%, or $40 for every $100,000 invested) so you might want to stay put or at least wait to see how these new funds pan out before moving (tax efficiency/tracking error/etc)."

No?

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Re: "Don't Obsess About Expense Ratios"

Post by farnsy » Wed Aug 08, 2018 8:09 pm

It is a fact that there is a strong pro-Vanguard sentiment in this forum, which makes perfect sense as John Bogle founded Vanguard. However, in recent years Schwab and Fidelity have been aggressively out-bogling Vanguard, at least in their big index funds.

The new zero-ER Fidelity funds follow a broad and drastic reduction in fees across Fidelity's index funds. Clearly people invested in taxable Vanguard funds should consider capital gains (both those they will incur when switching and any difference in tax treatment between Fidelity and Vanguard) before switching. However, it seems to me that new money should be flocking to Fidelity in response to this, especially in the tax advantaged accounts.

I have been a Vanguard fan for many years as they pioneered the whole index fund trend, but Fidelity has all my money now. Mostly this is because Fidelity's solo 401(k) plan accepts incoming rollovers from IRAs and lets you into premium fund classes, while Vanguard's doesn't. The expense ratio advantage (and increased advantage) is mostly gravy. But realistically, I'm here in this forum precisely because I do obsess about expense ratios and all my equity is in tax-advantaged accounts. Switching to Fidelity is a no-brainer for people like me and has been for a while.

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Re: "Don't Obsess About Expense Ratios"

Post by bikechuck » Wed Aug 08, 2018 9:31 pm

protagonist wrote:
Tue Aug 07, 2018 6:17 am
Two fierce competitors.

A good argument for moving money to Fidelity is to force Vanguard (and other firms) to also lower rates (I assume Fido never would have lowered their rates if they didn't have to compete with Vanguard's low rates in the first place).

Keep competition as fierce as possible. Vote with your assets. Reward the firm that offers the best deal. The others will eventually get the message and the long-term effect will be lower rates across the board for all of us.
At what point does a race to the bottom become something that is no longer in the best interest of investors. It takes money to invest in technology, security and customer service. I'm not so sure that charging zero is in the best interest of a mutual fund company or their customers.

Adding that I have low cost funds at TIAA, Vanguard and Schwab and I am not moving anything to chase a few basis point improvement in fees.

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Re: "Don't Obsess About Expense Ratios"

Post by TimeRunner » Wed Aug 08, 2018 9:55 pm

corn18 wrote:
Tue Aug 07, 2018 9:34 am
I wonder what value we are all getting for their $5.3B in profits last year? That's a 29% take that they could be passing on to investors instead of shareholders (whoever they are). The Johnsons are getting very rich off the backs of the average joe investor.

Make FIDO a mutual company like Vanguard. The only people getting really rich are the individual investors.

"Fidelity said the fee changes will save shareholders approximately $47 million annually." "In 2017, Boston-based Fidelity reported $18.2 billion in revenue, up 14% from the prior year, and $5.3 billion in operating income, a 54% year-over-year increase"
Operating income is not the same as profit....
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Re: "Don't Obsess About Expense Ratios"

Post by corn18 » Wed Aug 08, 2018 10:32 pm

TimeRunner wrote:
Wed Aug 08, 2018 9:55 pm
corn18 wrote:
Tue Aug 07, 2018 9:34 am
I wonder what value we are all getting for their $5.3B in profits last year? That's a 29% take that they could be passing on to investors instead of shareholders (whoever they are). The Johnsons are getting very rich off the backs of the average joe investor.

Make FIDO a mutual company like Vanguard. The only people getting really rich are the individual investors.

"Fidelity said the fee changes will save shareholders approximately $47 million annually." "In 2017, Boston-based Fidelity reported $18.2 billion in revenue, up 14% from the prior year, and $5.3 billion in operating income, a 54% year-over-year increase"
Operating income is not the same as profit....
Agree. But they'd have to be paying a lot of interest and taxes to erode that $5.3B too far, don't ya think?
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Re: "Don't Obsess About Expense Ratios"

Post by longleaf » Thu Aug 09, 2018 1:02 am

sschullo wrote:
Tue Aug 07, 2018 6:52 am
Nothing wrong with obsession, as long as you keep your rational head about it (Yeah, I know we are not rational, but we can still think about it reasonably! :-).
I think this debate between Vanguard and Fidelity is a distraction from the primary problem--fee-only financial advisors. I have an obsession with their AUM expense which is now accepted as a replacement for commissions. Unfortunately, many of my friends, relatives, and colleagues ask for help and I obsess over recommending them to hire a so-called fee only FA. They need help but lack the confidence of a DIY. I know, I know it's not my problem but I hate to see people get charged AUMs even if all of their money is in a free Fidelity fund. And ER is still an ER.
I'll add to this. If I became critically ill, somehow incapacitated or even dead, I would desire a non-profit brokerage like Vanguard that isn't going to persuade to push the funds into actively managed if someone had to take over my affairs. The worst I can see from Vanguard is paying their PAS which is still relatively cheap compared to other actively managed services. Also, I can account the time and effort it takes to transfer all of my assets from one to the other. I don't break even with the aforesaid, and considering the greater tax efficiency and better after-cost performance, my decision is easy.

Also, I'd like to see VG's ERs drop to zero, but I agree with not obsessing about trivial amounts of money in already tiny ERs! Let the time factor run its course. Long term ER trends, anyone?
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Re: "Don't Obsess About Expense Ratios"

Post by Dead Man Walking » Thu Aug 09, 2018 1:09 am

I've invested with Fidelity and Vanguard for decades. I'm amused by the posts that discuss the advantages of the personal service provided by Fidelity. When I began investing with these investment companies, I called each; and they snail mailed the forms that were required to open an account. I didn't notice any difference in the quality of service. A few years later I was able to access my accounts using my touchtone phone. I thought that was great and noticed no difference in the quality of service. Then Al Gore invented the internet :) and I was able to manage my account online. Hells bells, I was in seventh heaven! No more calls were necessary. Then I was able to push money from my bank to both. For the next 20 years, I didn't call either company. Consequently, I never experienced a difference in the quality of service.

I recently called Vanguard to establish a QCD, and everything went smoothly. When
my wife tried to transfer her IRA from Fidelity to Vanguard online, the procedure required her to open a brokerage account. Since she had a mutual fund account with Vanguard and did not want to establish a brokerage account, she called Vanguard about transferring her IRA from Fidelity to Vanguard. The representative with whom she spoke patiently explained how she could make the transfer without opening a brokerage account. She chose the snail mail alternative. The representative explained that new accounts and some online transactions required a brokerage account. At no time did he try to persuade her to convert from a mutual fund account to a brokerage account. He also confirmed that she could manage her account online as she had in the past. We were extremely satisfied with the service provided by Vanguard.

I'm surprised that so many Bogleheads call either company for services. I'm a septugenarian and have not called either company more than I have described here in over 20 years. Of course, I don't have a smartphone.

DMW

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Re: "Don't Obsess About Expense Ratios"

Post by Counterpoint » Thu Aug 09, 2018 7:40 am

Dead Man Walking wrote:
Thu Aug 09, 2018 1:09 am

I'm surprised that so many Bogleheads call either company for services. I'm a septugenarian and have not called either company more than I have described here in over 20 years. Of course, I don't have a smartphone.

DMW
My experience is that calling Vanguard has been helpful when it’s the first time I did something new. Our first Roth conversion. Reversing a botched backdoor Roth IRA. For others in my family, opening new accounts or transferring their funds from the sharks at a wirehouse firm. All of this could of course have been done online without calling them (and after checking out BH if necessary), but it was much faster to give them a quick call and have them walk you through it the first time around. Admittedly we’ve had access to Flagship reps who are really terrific, but in our pre-Flagship days the reps were perfectly competent and helpful as well.

My only gripe with Vanguard customer service is that it’s only on weekdays. Not a big issue for us anymore since we’re retired, but it can be annoying for those of our family who are working during the week.

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Re: "Don't Obsess About Expense Ratios"

Post by protagonist » Thu Aug 09, 2018 9:00 am

bikechuck wrote:
Wed Aug 08, 2018 9:31 pm
protagonist wrote:
Tue Aug 07, 2018 6:17 am
Two fierce competitors.

A good argument for moving money to Fidelity is to force Vanguard (and other firms) to also lower rates (I assume Fido never would have lowered their rates if they didn't have to compete with Vanguard's low rates in the first place).

Keep competition as fierce as possible. Vote with your assets. Reward the firm that offers the best deal. The others will eventually get the message and the long-term effect will be lower rates across the board for all of us.
At what point does a race to the bottom become something that is no longer in the best interest of investors. It takes money to invest in technology, security and customer service. I'm not so sure that charging zero is in the best interest of a mutual fund company or their customers.

Adding that I have low cost funds at TIAA, Vanguard and Schwab and I am not moving anything to chase a few basis point improvement in fees.
I can't answer your question ("At what point?....) That is a complex business decision that I imagine is well thought out by Fidelity's experts, Vanguard's experts, etc when they set fees. Only time will tell if a business decision was wise.

I already have all my investments with Fidelity so the question of switching does not concern me. Truth be told, if Vanguard was the firm that reduced their fees to zero, I probably would not switch out of laziness, unless I had so much invested that I deemed switching worth my time. I would have to do the math.

That said, consumers should ideally vote with their wallets...in the long run that benefits all consumers. How businesses respond to that pressure is their issue, not ours. I encourage those willing to switch to do so in order to keep competition as fierce as possible. Fortunately I don't have to practice what I preach in this case...makes it easy for me.

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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Thu Aug 09, 2018 9:28 am

farnsy wrote:
Wed Aug 08, 2018 8:09 pm
It is a fact that there is a strong pro-Vanguard sentiment in this forum, which makes perfect sense as John Bogle founded Vanguard. However, in recent years Schwab and Fidelity have been aggressively out-bogling Vanguard, at least in their big index funds.

The new zero-ER Fidelity funds follow a broad and drastic reduction in fees across Fidelity's index funds. Clearly people invested in taxable Vanguard funds should consider capital gains (both those they will incur when switching and any difference in tax treatment between Fidelity and Vanguard) before switching. However, it seems to me that new money should be flocking to Fidelity in response to this, especially in the tax advantaged accounts.

I have been a Vanguard fan for many years as they pioneered the whole index fund trend, but Fidelity has all my money now. Mostly this is because Fidelity's solo 401(k) plan accepts incoming rollovers from IRAs and lets you into premium fund classes, while Vanguard's doesn't. The expense ratio advantage (and increased advantage) is mostly gravy. But realistically, I'm here in this forum precisely because I do obsess about expense ratios and all my equity is in tax-advantaged accounts. Switching to Fidelity is a no-brainer for people like me and has been for a while.
You need to read the link in the OP. Despite some of Vanguard's funds having 1-3 basis point higher ERs, they've actually had slightly better returns than Schwab and Fidelity. Again, minimizing ERs is a worthwhile goal, but it's not the whole story; Vanguard has demonstrated that they are better at indexing than others.
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Re: "Don't Obsess About Expense Ratios"

Post by Erwin007 » Thu Aug 09, 2018 10:38 am

willthrill81 wrote:
Thu Aug 09, 2018 9:28 am
farnsy wrote:
Wed Aug 08, 2018 8:09 pm
It is a fact that there is a strong pro-Vanguard sentiment in this forum, which makes perfect sense as John Bogle founded Vanguard. However, in recent years Schwab and Fidelity have been aggressively out-bogling Vanguard, at least in their big index funds.

The new zero-ER Fidelity funds follow a broad and drastic reduction in fees across Fidelity's index funds. Clearly people invested in taxable Vanguard funds should consider capital gains (both those they will incur when switching and any difference in tax treatment between Fidelity and Vanguard) before switching. However, it seems to me that new money should be flocking to Fidelity in response to this, especially in the tax advantaged accounts.

I have been a Vanguard fan for many years as they pioneered the whole index fund trend, but Fidelity has all my money now. Mostly this is because Fidelity's solo 401(k) plan accepts incoming rollovers from IRAs and lets you into premium fund classes, while Vanguard's doesn't. The expense ratio advantage (and increased advantage) is mostly gravy. But realistically, I'm here in this forum precisely because I do obsess about expense ratios and all my equity is in tax-advantaged accounts. Switching to Fidelity is a no-brainer for people like me and has been for a while.
You need to read the link in the OP. Despite some of Vanguard's funds having 1-3 basis point higher ERs, they've actually had slightly better returns than Schwab and Fidelity. Again, minimizing ERs is a worthwhile goal, but it's not the whole story; Vanguard has demonstrated that they are better at indexing than others.
+1.

As is typical for this forum a lot of times, people don’t actually read the article but post their opinions on it anyway, even if those opinions are incomplete/inaccurate.

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Re: "Don't Obsess About Expense Ratios"

Post by Majormajor78 » Thu Aug 09, 2018 3:58 pm

Barry Barnitz wrote:
Wed Aug 08, 2018 12:52 pm
Hi Majormajor78:

What you are seeing in the international fund tracking error is most likely the result of fair-value pricing. Vanguard places the following explanation on their Total International Index fund webpage:


An index fund’s return may sometimes appear to diverge from the return of its benchmark index a bit more than would be expected. This may be the result of a fair-value pricing adjustment.

These adjustments, which are required by the U.S. Securities and Exchange Commission, address pricing discrepancies that may arise because of time-zone differences among global securities markets. Foreign securities may trade on exchanges that close many hours before a fund’s closing share price is calculated in the United States, generally at 4 p.m., Eastern time. In the hours between the close of the foreign market and the close of the U.S. market, the value of these foreign securities may change—for example, because of company-specific announcements or market-wide developments. Such price changes are not immediately reflected in international index values.

Fair-value pricing takes such changes into account in calculating the fund’s daily net asset value (NAV) to help ensure that the NAV doesn’t include stale prices. The result can be a temporary divergence between the return of the fund and that of its benchmark index—a difference that usually corrects itself when the foreign markets reopen.
Here are the comparable reported tracking error performance of the Vanguard Total International Stock Index fund Admiral shares:

2012 VTIAX 18.21% MSCI ACWI ex USA IMI Index 17.04%
Tracking error: +1.17

2013 VTIAX 15.14% Spliced index 15.76%
Tracking error:-0.62

2014 VTIAX -4.17% FTSE Global All Cap ex US Index -3.39%
Tracking error: +0.78

2015 VTIAX -4.26% FTSE Global All Cap ex US Index -4.29%
Tracking error: -0.03

2016 VTIAX 4.67% FTSE Global All Cap ex US Index 4.72%
Tracking error: -0.05

2017 VTIAX 27.15% FTSE Global All Cap ex US Index 27.41%
Tracking error: +0.14

regards,
Thank you for the correction. I knew about the intra-day divergence but hadn't considered that it would so drastically skew the annualized numbers.
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Re: "Don't Obsess About Expense Ratios"

Post by Nate79 » Thu Aug 09, 2018 4:29 pm

As mentioned in the other thread on this topic this article was quite bad. Seems very quickly thrown together to try and support Vanguard. It's a shame and should be retracted.

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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Thu Aug 09, 2018 4:37 pm

Nate79 wrote:
Thu Aug 09, 2018 4:29 pm
As mentioned in the other thread on this topic this article was quite bad. Seems very quickly thrown together to try and support Vanguard. It's a shame and should be retracted.
Is it factually incorrect? Have Vanguard's funds not outperformed their competitors, despite 1-3 basis point higher ERs?
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