"Don't Obsess About Expense Ratios"

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John Laurens
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Re: "Don't Obsess About Expense Ratios"

Post by John Laurens »

vineviz wrote: Sat Aug 11, 2018 8:46 pm
UpperNwGuy wrote: Sat Aug 11, 2018 8:11 pm
rkhusky wrote: Sat Aug 11, 2018 6:55 pm
passiveTiger wrote: Sat Aug 11, 2018 3:47 pm There is a substantial amount of assets in VTSMX. Those people are paying excessively for it, and they can pay much lower elsewhere.
The ER for Investor shares is not excessive, it is very reasonable. Paying $14 or less per year is very reasonable for the web site access, basis tracking, tax forms, telephone support, etc., that Vanguard must perform for every account. In fact, I would guess that it doesn't really cover the full cost and the rest of us have to pick up the balance.
Yes, it is excessive.... compared to Admiral shares, compared to Schwab, and now compared to Fidelity.
Higher and “excessive” aren’t the same thing, you know.
When you input 14bp into a calculator and divide by ZERO bp to find the difference all you get is an “ERROR” message. Lol. If I were Fidelity, I would be running that ad tomorrow. Of course there would be no one to answer the phone tomorrow at Vanguard to explain.

Regards,
John
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willthrill81
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 »

vineviz wrote: Sat Aug 11, 2018 8:46 pm
UpperNwGuy wrote: Sat Aug 11, 2018 8:11 pm
rkhusky wrote: Sat Aug 11, 2018 6:55 pm
passiveTiger wrote: Sat Aug 11, 2018 3:47 pm There is a substantial amount of assets in VTSMX. Those people are paying excessively for it, and they can pay much lower elsewhere.
The ER for Investor shares is not excessive, it is very reasonable. Paying $14 or less per year is very reasonable for the web site access, basis tracking, tax forms, telephone support, etc., that Vanguard must perform for every account. In fact, I would guess that it doesn't really cover the full cost and the rest of us have to pick up the balance.
Yes, it is excessive.... compared to Admiral shares, compared to Schwab, and now compared to Fidelity.
Higher and “excessive” aren’t the same thing, you know.
Bingo.

What remains to be seen is whether Fidelity's new TSM fund will have the same after-fee returns as Vanguard's VTSAX. The index they are tracking is slightly different, and historical evidence has shown that Vanguard may have less tracking error than Fidelity and Schwab. So in the end, the 'zero ER' may be a moot point. But frankly, 4 basis points is a moot point anyway IMO.

I wonder if people who think 4 basis points are very worthwhile take a similar stance with all other aspects of their lives, putting forth any amount of effort possible to potentially save a few bucks.
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passiveTiger
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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger »

vineviz wrote: Sat Aug 11, 2018 8:46 pm
UpperNwGuy wrote: Sat Aug 11, 2018 8:11 pm
rkhusky wrote: Sat Aug 11, 2018 6:55 pm
passiveTiger wrote: Sat Aug 11, 2018 3:47 pm There is a substantial amount of assets in VTSMX. Those people are paying excessively for it, and they can pay much lower elsewhere.
The ER for Investor shares is not excessive, it is very reasonable. Paying $14 or less per year is very reasonable for the web site access, basis tracking, tax forms, telephone support, etc., that Vanguard must perform for every account. In fact, I would guess that it doesn't really cover the full cost and the rest of us have to pick up the balance.
Yes, it is excessive.... compared to Admiral shares, compared to Schwab, and now compared to Fidelity.
Higher and “excessive” aren’t the same thing, you know.
Excessive means more than necessary. The ER is more than necessary for the potential VTSMX investor when that investor can go to Schwab or Fidelity, pay less, and be invested with $1 (at Fidelity).

The only argument for someone to be out of the market until that person accumulates $3,000, have to place it all in one fund, and be assessed a higher ER is “because it’s Vanguard” which is nonsense.

If someone has $3, that person can start a three-fund portfolio at Fidelity for a lower ER than Admiral Shares investors pay that would require $30,000.
passiveTiger
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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger »

Barry Barnitz wrote: Sat Aug 11, 2018 4:26 pm HI;
There is a substantial amount of assets in VTSMX. Those people are paying excessively for it, and they can pay much lower elsewhere. They can then continue to accumulate elsewhere at a lower ER. It’s not so much that they get a better deal at the beginning (although that is a good thing), they will get a better deal period without having to save $3,000 or $1,000 first just for a higher ER.
Keep in mind that a large bulk of the assets in the investor shares of the Vanguard Total Stock Market Index Fund and the Vanguard Total International Index Fund are held in the Vanguard fund-of-fund balanced funds.

These include:
  • The entire series of Vanguard LifeStrategy funds
  • The Vanguard Managed Payout fund
Without manually assessing the VTSMX share of these fund-of-fund balances we can not affirmatively state that the share of individuals holding these shares tracks the percentages of individual holdings in Vanguard's large cap index funds, although it is likely to be closer to reality:
  • Vanguard Growth Index Fund. Total Assets=73,116,654,000; investor shares= 3,209,536,000
  • Vanguard Value Index Fund. Total Assets=65,048,747,000; investor shares=1,626,146,000
  • Vanguard Large Cap Index Fund: Total Assets=18,586,692,000; investor shares=386,968,000
regards,
I would not be in anything at Vanguard that is composed of Investor Share holdings. Why would someone do that?

viewtopic.php?f=10&t=255356&p=4058229#p4058229
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Re: "Don't Obsess About Expense Ratios"

Post by vineviz »

passiveTiger wrote: Sat Aug 11, 2018 10:52 pm
vineviz wrote: Sat Aug 11, 2018 8:46 pm
UpperNwGuy wrote: Sat Aug 11, 2018 8:11 pm
rkhusky wrote: Sat Aug 11, 2018 6:55 pm
passiveTiger wrote: Sat Aug 11, 2018 3:47 pm There is a substantial amount of assets in VTSMX. Those people are paying excessively for it, and they can pay much lower elsewhere.
The ER for Investor shares is not excessive, it is very reasonable. Paying $14 or less per year is very reasonable for the web site access, basis tracking, tax forms, telephone support, etc., that Vanguard must perform for every account. In fact, I would guess that it doesn't really cover the full cost and the rest of us have to pick up the balance.
Yes, it is excessive.... compared to Admiral shares, compared to Schwab, and now compared to Fidelity.
Higher and “excessive” aren’t the same thing, you know.
Excessive means more than necessary. The ER is more than necessary for the potential VTSMX investor when that investor can go to Schwab or Fidelity, pay less, and be invested with $1 (at Fidelity).

The only argument for someone to be out of the market until that person accumulates $3,000, have to place it all in one fund, and be assessed a higher ER is “because it’s Vanguard” which is nonsense.

If someone has $3, that person can start a three-fund portfolio at Fidelity for a lower ER than Admiral Shares investors pay that would require $30,000.
ER is not the only cost in investing.

Not everyone has an anti-Vanguard bias.

And we don’t get to decide what other people should value.

For those reasons and more, just because the headline ER is higher that doesn’t make it excessive.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
passiveTiger
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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger »

vineviz wrote: Sat Aug 11, 2018 11:32 pm
passiveTiger wrote: Sat Aug 11, 2018 10:52 pm
Excessive means more than necessary. The ER is more than necessary for the potential VTSMX investor when that investor can go to Schwab or Fidelity, pay less, and be invested with $1 (at Fidelity).

The only argument for someone to be out of the market until that person accumulates $3,000, have to place it all in one fund, and be assessed a higher ER is “because it’s Vanguard” which is nonsense.

If someone has $3, that person can start a three-fund portfolio at Fidelity for a lower ER than Admiral Shares investors pay that would require $30,000.
ER is not the only cost in investing.

Not everyone has an anti-Vanguard bias.

And we don’t get to decide what other people should value.

For those reasons and more, just because the headline ER is higher that doesn’t make it excessive.
I’m not anti-Vanguard, or I wouldn’t be in their funds in the first place.

If someone wants to be assessed more than necessary by Vanguard because it makes them feel warm inside, I guess that’s okay, but it seems silly to me.

But having to be out of the market until dollar 3,000 so you can be assessed 0.14% when you could be invested at dollar 100 for 0.03% or dollar 1 at 0.015% or even 0.00% is excessive. It’s excessive to force that small investor to be out of the market. It’s excessive to be assessed much more ER than by competitors once deemed worthy enough to pay that excessive amount.

Until recently, Fidelity was guilty of all these things, too. Now, they’re not. VTSMX investors should take advantage of that.

If someone is in VTSAX, the differences aren’t nearly as large and your $10,000 hurdle has been overcome. But why should someone with only $10,000 have to place it all in one fund? Why should someone need $30,000 to execute the minimum of a three fund portfolio that this site might advocate (viewtopic.php?f=10&t=230605) at a competitive ER, when it can be done for as little as $3 elsewhere and for less?

For someone in VTSMX or (even worse) saving to be in VTSMX, there is no reason to be there or doing that. They can take whatever they have less than $3,000 or $10,000 and get started growing it on Monday.
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Re: "Don't Obsess About Expense Ratios"

Post by vineviz »

passiveTiger wrote: Sun Aug 12, 2018 1:09 am
vineviz wrote: Sat Aug 11, 2018 11:32 pm
passiveTiger wrote: Sat Aug 11, 2018 10:52 pm
Excessive means more than necessary. The ER is more than necessary for the potential VTSMX investor when that investor can go to Schwab or Fidelity, pay less, and be invested with $1 (at Fidelity).

The only argument for someone to be out of the market until that person accumulates $3,000, have to place it all in one fund, and be assessed a higher ER is “because it’s Vanguard” which is nonsense.

If someone has $3, that person can start a three-fund portfolio at Fidelity for a lower ER than Admiral Shares investors pay that would require $30,000.
ER is not the only cost in investing.

Not everyone has an anti-Vanguard bias.

And we don’t get to decide what other people should value.

For those reasons and more, just because the headline ER is higher that doesn’t make it excessive.
I’m not anti-Vanguard, or I wouldn’t be in their funds in the first place.

If someone wants to be assessed more than necessary by Vanguard because it makes them feel warm inside, I guess that’s okay, but it seems silly to me.

But having to be out of the market until dollar 3,000 so you can be assessed 0.14% when you could be invested at dollar 100 for 0.03% or dollar 1 at 0.015% or even 0.00% is excessive. It’s excessive to force that small investor to be out of the market. It’s excessive to be assessed much more ER than by competitors once deemed worthy enough to pay that excessive amount.

Until recently, Fidelity was guilty of all these things, too. Now, they’re not. VTSMX investors should take advantage of that.

If someone is in VTSAX, the differences aren’t nearly as large and your $10,000 hurdle has been overcome. But why should someone with only $10,000 have to place it all in one fund? Why should someone need $30,000 to execute the minimum of a three fund portfolio that this site might advocate (viewtopic.php?f=10&t=230605) at a competitive ER, when it can be done for as little as $3 elsewhere and for less?

For someone in VTSMX or (even worse) saving to be in VTSMX, there is no reason to be there or doing that. They can take whatever they have less than $3,000 or $10,000 and get started growing it on Monday.
You seem to be obsessed with the notion that just because you don’t see the value of something then that thing has no value for anyone.

The world is NEVER that simple.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: "Don't Obsess About Expense Ratios"

Post by rkhusky »

passiveTiger wrote: Sun Aug 12, 2018 1:09 am For someone in VTSMX or (even worse) saving to be in VTSMX, there is no reason to be there or doing that. They can take whatever they have less than $3,000 or $10,000 and get started growing it on Monday.
If that person is so concerned about saving a few pennies, then they should move their money. They could then sleep better at night, which is the most important advantage they would have in switching. As someone with all Admiral shares, I would welcome the reduction of Investor share accounts, which are probably costing me extra fees. Rather than lowering the minimums or ER for Investor shares, what I would like see Vanguard do is create Admiral shares of the Target Retirement funds, with perhaps a $25K or $50K minimum.
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Re: "Don't Obsess About Expense Ratios"

Post by blaugranamd »

abuss368 wrote: Sat Aug 11, 2018 7:45 pm I am unsure why Fidelity just did not cut the expense ratio's to their existing index funds. Now anyone with capital gains may not be able to invest in the new offerings.
I would assume it has to do with their internal index saving some $ potentially. They did drop their existing funds to essentially zero. FSTVX ER is 0.015%
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Re: "Don't Obsess About Expense Ratios"

Post by abuss368 »

blaugranamd wrote: Sun Aug 12, 2018 7:31 am
abuss368 wrote: Sat Aug 11, 2018 7:45 pm I am unsure why Fidelity just did not cut the expense ratio's to their existing index funds. Now anyone with capital gains may not be able to invest in the new offerings.
I would assume it has to do with their internal index saving some $ potentially. They did drop their existing funds to essentially zero. FSTVX ER is 0.015%
Thanks.
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Re: "Don't Obsess About Expense Ratios"

Post by blaugranamd »

passiveTiger wrote: Sun Aug 12, 2018 1:09 am
vineviz wrote: Sat Aug 11, 2018 11:32 pm
passiveTiger wrote: Sat Aug 11, 2018 10:52 pm
Excessive means more than necessary. The ER is more than necessary for the potential VTSMX investor when that investor can go to Schwab or Fidelity, pay less, and be invested with $1 (at Fidelity).

The only argument for someone to be out of the market until that person accumulates $3,000, have to place it all in one fund, and be assessed a higher ER is “because it’s Vanguard” which is nonsense.

If someone has $3, that person can start a three-fund portfolio at Fidelity for a lower ER than Admiral Shares investors pay that would require $30,000.
ER is not the only cost in investing.

Not everyone has an anti-Vanguard bias.

And we don’t get to decide what other people should value.

For those reasons and more, just because the headline ER is higher that doesn’t make it excessive.
I’m not anti-Vanguard, or I wouldn’t be in their funds in the first place.

If someone wants to be assessed more than necessary by Vanguard because it makes them feel warm inside, I guess that’s okay, but it seems silly to me.

But having to be out of the market until dollar 3,000 so you can be assessed 0.14% when you could be invested at dollar 100 for 0.03% or dollar 1 at 0.015% or even 0.00% is excessive. It’s excessive to force that small investor to be out of the market. It’s excessive to be assessed much more ER than by competitors once deemed worthy enough to pay that excessive amount.

Until recently, Fidelity was guilty of all these things, too. Now, they’re not. VTSMX investors should take advantage of that.

If someone is in VTSAX, the differences aren’t nearly as large and your $10,000 hurdle has been overcome. But why should someone with only $10,000 have to place it all in one fund? Why should someone need $30,000 to execute the minimum of a three fund portfolio that this site might advocate (viewtopic.php?f=10&t=230605) at a competitive ER, when it can be done for as little as $3 elsewhere and for less?

For someone in VTSMX or (even worse) saving to be in VTSMX, there is no reason to be there or doing that. They can take whatever they have less than $3,000 or $10,000 and get started growing it on Monday.
This is why I think the $0 minimums is the more important change made by Fidelity, not the ER drop. Most people probably won't move money to save those last few BP per year but many new investors will likely want to dive into the $10 three fund portfolio directly. Once they're there, they'll be more likely to stay. That, IMO, was the smart move.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---
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Re: "Don't Obsess About Expense Ratios"

Post by Outafter20 »

"I Rather than lowering the minimums or ER for Investor shares, what I would like see Vanguard do is create Admiral shares of the Target Retirement funds, with perhaps a $25K or $50K minimum."

Or do what Schwab does and use ETFs.
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Re: "Don't Obsess About Expense Ratios"

Post by vineviz »

rkhusky wrote: Sun Aug 12, 2018 7:12 am ... what I would like see Vanguard do is create Admiral shares of the Target Retirement funds, with perhaps a $25K or $50K minimum.
I’ve always been baffled that there is no Admiral share class of the target risk or target date funds at Vanguard but apparently it’s a regulatory challenge in part.

https://obliviousinvestor.com/vanguard- ... al-shares/

Maybe demand isn’t high enough for them to find a creative solution.
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Re: "Don't Obsess About Expense Ratios"

Post by Broken Man 1999 »

Outafter20 wrote: Sun Aug 12, 2018 8:16 am "I Rather than lowering the minimums or ER for Investor shares, what I would like see Vanguard do is create Admiral shares of the Target Retirement funds, with perhaps a $25K or $50K minimum."

Or do what Schwab does and use ETFs.
I held a Target Retirement fund for some time, then decided to break down the investment into the underlying funds to achieve Admiral ERs.

So, Admiral ERs would be nice for those using TR funds. Today, I wouldn't invest in one myself, since they added international bonds.

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Re: "Don't Obsess About Expense Ratios"

Post by mathguy3021 »

Expense ratios are important, but not the only variable that affect the total return of an index fund. I will not switch from VTI or VTSAX to FZROX or FSTVX over a few basis point difference in expense ratio. The reason is that VTI and VTSAX have proven tax efficiency and total returns with minimal tracking error and I trust the vanguard funds (VTI and VTSAX) to track the CRSP total US market index. Comparing VTSAX to FSTVX which is Fidelity's equivalent low cost total US market index fund, I see that the 5 year annualized total return as of 07/31/18 is 12.81% for VTSAX and 12.76% for FSTVX. Over the past year, VTSAX total return = 16.49% vs. FSTVX total return = 16.42%. So even if FSTVX had a zero percent expense ratio over the last year, it would not have matched VTSAX in total returns assuming FSTVX had a 3 to 4 basis point expense ratio over the course of the year.
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Re: "Don't Obsess About Expense Ratios"

Post by Majormajor78 »

blaugranamd wrote: Sun Aug 12, 2018 7:37 am
passiveTiger wrote: Sun Aug 12, 2018 1:09 am
vineviz wrote: Sat Aug 11, 2018 11:32 pm
passiveTiger wrote: Sat Aug 11, 2018 10:52 pm
Excessive means more than necessary. The ER is more than necessary for the potential VTSMX investor when that investor can go to Schwab or Fidelity, pay less, and be invested with $1 (at Fidelity).

The only argument for someone to be out of the market until that person accumulates $3,000, have to place it all in one fund, and be assessed a higher ER is “because it’s Vanguard” which is nonsense.

If someone has $3, that person can start a three-fund portfolio at Fidelity for a lower ER than Admiral Shares investors pay that would require $30,000.
ER is not the only cost in investing.

Not everyone has an anti-Vanguard bias.

And we don’t get to decide what other people should value.

For those reasons and more, just because the headline ER is higher that doesn’t make it excessive.
I’m not anti-Vanguard, or I wouldn’t be in their funds in the first place.

If someone wants to be assessed more than necessary by Vanguard because it makes them feel warm inside, I guess that’s okay, but it seems silly to me.

But having to be out of the market until dollar 3,000 so you can be assessed 0.14% when you could be invested at dollar 100 for 0.03% or dollar 1 at 0.015% or even 0.00% is excessive. It’s excessive to force that small investor to be out of the market. It’s excessive to be assessed much more ER than by competitors once deemed worthy enough to pay that excessive amount.

Until recently, Fidelity was guilty of all these things, too. Now, they’re not. VTSMX investors should take advantage of that.

If someone is in VTSAX, the differences aren’t nearly as large and your $10,000 hurdle has been overcome. But why should someone with only $10,000 have to place it all in one fund? Why should someone need $30,000 to execute the minimum of a three fund portfolio that this site might advocate (viewtopic.php?f=10&t=230605) at a competitive ER, when it can be done for as little as $3 elsewhere and for less?

For someone in VTSMX or (even worse) saving to be in VTSMX, there is no reason to be there or doing that. They can take whatever they have less than $3,000 or $10,000 and get started growing it on Monday.
This is why I think the $0 minimums is the more important change made by Fidelity, not the ER drop. Most people probably won't move money to save those last few BP per year but many new investors will likely want to dive into the $10 three fund portfolio directly. Once they're there, they'll be more likely to stay. That, IMO, was the smart move.
+1

This is why I didn't start investing at Vanguard when I first started out and instead went to Scottrade. I liked their funds and the ER's but I wanted to construct a well rounded portfolio "correctly" right off the bat. Of course my definition of "correctly" has matured a little since then. Looking back I shouldn't have sweated a few basis points or the exact ratio of stocks/bonds. Probably would have started with the Star fund had I the opportunity to do it again and then broken it out into individual funds when the time came. But that of course is hindsight. Those low minimums are going to generate a lot of new customers for Fidelity in the near future. When I first started investing, Fidelity (and many others) had some crazy price structure with a chart for trading costs showing multiple tiers of pricing for assets under management and/or number of trades per year. Used to be like $20 a trade of the new little guy starting out and then scaling down to $10 or $7 for the bigger fish. That was only a little over 10 years ago. Really felt punitive to me the guy with a few hundred dollars extra sitting around and a desire to get serious about the future.
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Re: "Don't Obsess About Expense Ratios"

Post by randomguy »

vineviz wrote: Sun Aug 12, 2018 10:54 am
rkhusky wrote: Sun Aug 12, 2018 7:12 am ... what I would like see Vanguard do is create Admiral shares of the Target Retirement funds, with perhaps a $25K or $50K minimum.
I’ve always been baffled that there is no Admiral share class of the target risk or target date funds at Vanguard but apparently it’s a regulatory challenge in part.

https://obliviousinvestor.com/vanguard- ... al-shares/

Maybe demand isn’t high enough for them to find a creative solution.
[OT comment removed by admin LadyGeek] Charge .01% ER and everyone wins. Except vanguard who wants the .08% or so that they get today.

And in reality, your AIO fund shouldn't hold admiral shares. It should hold institutional plus(the fund has billions in assets. I think it qualifies).

It is funny though how this discussion changes. Want to buys some SV fund with .1% ER? Why pay 2x as much as TSM? Want to buy some fund with a cheaper ER? ER doesn't matter.
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Re: "Don't Obsess About Expense Ratios"

Post by rkhusky »

vineviz wrote: Sun Aug 12, 2018 10:54 am
rkhusky wrote: Sun Aug 12, 2018 7:12 am ... what I would like see Vanguard do is create Admiral shares of the Target Retirement funds, with perhaps a $25K or $50K minimum.
I’ve always been baffled that there is no Admiral share class of the target risk or target date funds at Vanguard but apparently it’s a regulatory challenge in part.

https://obliviousinvestor.com/vanguard- ... al-shares/

Maybe demand isn’t high enough for them to find a creative solution.
Thanks. That makes sense.
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Re: "Don't Obsess About Expense Ratios"

Post by Kenneth Almquist »

UpperNwGuy wrote: Mon Aug 06, 2018 6:47 pm
BlackHat wrote: Mon Aug 06, 2018 5:10 pm He's so right. I'm almost afraid that this zero expense ratio thing might be a bait and switch.
Can you give us a single example from the last 50 years of a brokerage who has engaged in bait and switch by lowering ERs only to later increase them?
Fidelity, specifically with the Fidelity Spartan Money Market Fund. As I recall, when it was introduced it had an expense ratio 0f 0.1%. After getting a whole bunch of investors based on the low cost, Fidelity jacked up the expense ratio.
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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab »

Kenneth Almquist wrote: Mon Aug 13, 2018 4:38 am
UpperNwGuy wrote: Mon Aug 06, 2018 6:47 pm
BlackHat wrote: Mon Aug 06, 2018 5:10 pm He's so right. I'm almost afraid that this zero expense ratio thing might be a bait and switch.
Can you give us a single example from the last 50 years of a brokerage who has engaged in bait and switch by lowering ERs only to later increase them?
Fidelity, specifically with the Fidelity Spartan Money Market Fund. As I recall, when it was introduced it had an expense ratio 0f 0.1%. After getting a whole bunch of investors based on the low cost, Fidelity jacked up the expense ratio.
Even if true, money market funds have no capital gains. People generally pay no attention to the ER of such funds, but only the overall rate. No one is stuck with a money market product.
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Re: "Don't Obsess About Expense Ratios"

Post by dewey »

When Vanguard was thumping the competition with unbelievably low ER's, it made sense for that cost to be a significant factor when choosing a provider. But once the fees are close to identical or with very little difference, it loses its compelling consideration compared to the past. That's what I take from the 'Don't obsess..." part. That said, I don't believe any of the others would have made the cost reductions if they weren't pinched by Vanguard to begin with. Without Vanguard, it's fair to say little would have changed. I credit Vanguard for being the trail blazer and I'm content to stay with them.
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Re: "Don't Obsess About Expense Ratios"

Post by 2015 »

willthrill81 wrote: Sat Aug 11, 2018 10:05 pm
vineviz wrote: Sat Aug 11, 2018 8:46 pm
UpperNwGuy wrote: Sat Aug 11, 2018 8:11 pm
rkhusky wrote: Sat Aug 11, 2018 6:55 pm
passiveTiger wrote: Sat Aug 11, 2018 3:47 pm
Yes, it is excessive.... compared to Admiral shares, compared to Schwab, and now compared to Fidelity.
Higher and “excessive” aren’t the same thing, you know.
Bingo.

What remains to be seen is whether Fidelity's new TSM fund will have the same after-fee returns as Vanguard's VTSAX. The index they are tracking is slightly different, and historical evidence has shown that Vanguard may have less tracking error than Fidelity and Schwab. So in the end, the 'zero ER' may be a moot point. But frankly, 4 basis points is a moot point anyway IMO.

I wonder if people who think 4 basis points are very worthwhile take a similar stance with all other aspects of their lives, putting forth any amount of effort possible to potentially save a few bucks.
Very well said (the last paragraph in particular).

The underlined portion of your post is my heartburn when it comes to even considering transferring after tax assets to Fidelity's new 0% funds. I prefer to let other early adopters be the road kill before venturing into something like this. It's like buying a first year model of an auto when it takes a few years for the manufacturer to get the bugs out.

My total PF ER at VG is only .05% anyway, and a moot point indeed.
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"Fidelity Offers New Zero-Cost Funds. Should You Switch?"

Post by Taylor Larimore »

Bogleheads:

MoneyWatch posted an article today about the new Fidelity zero-cost funds. This is the link:

Fidelity Offers New Zero-Cost Funds. Should You Switch?

Best wishes.
Taylor
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Re: "Don't Obsess About Expense Ratios"

Post by Theoretical »

It is funny though how this discussion changes. Want to buys some SV fund with .1% ER? Why pay 2x as much as TSM? Want to buy some fund with a cheaper ER? ER doesn't matter.
This. All the way. Fidelity has done investors a real service, especially dropping the minimums and ERs on a bunch of other funds.
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Re: "Don't Obsess About Expense Ratios"

Post by Nate79 »

dewey wrote: Mon Aug 13, 2018 11:10 am When Vanguard was thumping the competition with unbelievably low ER's, it made sense for that cost to be a significant factor when choosing a provider. But once the fees are close to identical or with very little difference, it loses its compelling consideration compared to the past. That's what I take from the 'Don't obsess..." part. That said, I don't believe any of the others would have made the cost reductions if they weren't pinched by Vanguard to begin with. Without Vanguard, it's fair to say little would have changed. I credit Vanguard for being the trail blazer and I'm content to stay with them.
When was this?
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Re: "Don't Obsess About Expense Ratios"

Post by Whakamole »

Nate79 wrote: Mon Aug 13, 2018 2:41 pm
dewey wrote: Mon Aug 13, 2018 11:10 am When Vanguard was thumping the competition with unbelievably low ER's, it made sense for that cost to be a significant factor when choosing a provider. But once the fees are close to identical or with very little difference, it loses its compelling consideration compared to the past. That's what I take from the 'Don't obsess..." part. That said, I don't believe any of the others would have made the cost reductions if they weren't pinched by Vanguard to begin with. Without Vanguard, it's fair to say little would have changed. I credit Vanguard for being the trail blazer and I'm content to stay with them.
When was this?
https://investor.vanguard.com/mutual-fu ... file/VTSAX
Expense ratio as of 04/25/2018: 0.04%

This is 96% lower than the average expense ratio of funds with similar holdings.*
Emphasis theirs.
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Re: "Don't Obsess About Expense Ratios"

Post by Nate79 »

Whakamole wrote: Mon Aug 13, 2018 2:59 pm
Nate79 wrote: Mon Aug 13, 2018 2:41 pm
dewey wrote: Mon Aug 13, 2018 11:10 am When Vanguard was thumping the competition with unbelievably low ER's, it made sense for that cost to be a significant factor when choosing a provider. But once the fees are close to identical or with very little difference, it loses its compelling consideration compared to the past. That's what I take from the 'Don't obsess..." part. That said, I don't believe any of the others would have made the cost reductions if they weren't pinched by Vanguard to begin with. Without Vanguard, it's fair to say little would have changed. I credit Vanguard for being the trail blazer and I'm content to stay with them.
When was this?
https://investor.vanguard.com/mutual-fu ... file/VTSAX
Expense ratio as of 04/25/2018: 0.04%

This is 96% lower than the average expense ratio of funds with similar holdings.*
Emphasis theirs.
So the other 4% is Schwab and Fidelity? Certainly there are more expensive funds but I believe Schwab and Fidelity have been beating Vanguard for a number of years now.
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Re: "Don't Obsess About Expense Ratios"

Post by retiringwhen »

Nate79 wrote: Mon Aug 13, 2018 3:08 pm
Whakamole wrote: Mon Aug 13, 2018 2:59 pm
Nate79 wrote: Mon Aug 13, 2018 2:41 pm
dewey wrote: Mon Aug 13, 2018 11:10 am When Vanguard was thumping the competition with unbelievably low ER's, it made sense for that cost to be a significant factor when choosing a provider. But once the fees are close to identical or with very little difference, it loses its compelling consideration compared to the past. That's what I take from the 'Don't obsess..." part. That said, I don't believe any of the others would have made the cost reductions if they weren't pinched by Vanguard to begin with. Without Vanguard, it's fair to say little would have changed. I credit Vanguard for being the trail blazer and I'm content to stay with them.
When was this?
https://investor.vanguard.com/mutual-fu ... file/VTSAX
Expense ratio as of 04/25/2018: 0.04%

This is 96% lower than the average expense ratio of funds with similar holdings.*
Emphasis theirs.
So the other 4% is Schwab and Fidelity? Certainly there are more expensive funds but I believe Schwab and Fidelity have been beating Vanguard for a number of years now.
It is not a percentile ranking but a comparison to Average expense ratios at the fund level,
.
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Re: "Don't Obsess About Expense Ratios"

Post by Whakamole »

Nate79 wrote: Mon Aug 13, 2018 3:08 pm
Whakamole wrote: Mon Aug 13, 2018 2:59 pm
Nate79 wrote: Mon Aug 13, 2018 2:41 pm
dewey wrote: Mon Aug 13, 2018 11:10 am When Vanguard was thumping the competition with unbelievably low ER's, it made sense for that cost to be a significant factor when choosing a provider. But once the fees are close to identical or with very little difference, it loses its compelling consideration compared to the past. That's what I take from the 'Don't obsess..." part. That said, I don't believe any of the others would have made the cost reductions if they weren't pinched by Vanguard to begin with. Without Vanguard, it's fair to say little would have changed. I credit Vanguard for being the trail blazer and I'm content to stay with them.
When was this?
https://investor.vanguard.com/mutual-fu ... file/VTSAX
Expense ratio as of 04/25/2018: 0.04%

This is 96% lower than the average expense ratio of funds with similar holdings.*
Emphasis theirs.
So the other 4% is Schwab and Fidelity? Certainly there are more expensive funds but I believe Schwab and Fidelity have been beating Vanguard for a number of years now.
That's not what Vanguard is stating. They are stating that the average expense ratio of funds with similar holdings is 96% higher than 4 basis points (which is 1% according to my math), not that they are cheaper than 96% of funds.
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Re: "Don't Obsess About Expense Ratios"

Post by UpsetRaptor »

willthrill81 wrote: Sat Aug 11, 2018 10:05 pm
vineviz wrote: Sat Aug 11, 2018 8:46 pm
UpperNwGuy wrote: Sat Aug 11, 2018 8:11 pm
rkhusky wrote: Sat Aug 11, 2018 6:55 pm
passiveTiger wrote: Sat Aug 11, 2018 3:47 pm There is a substantial amount of assets in VTSMX. Those people are paying excessively for it, and they can pay much lower elsewhere.
The ER for Investor shares is not excessive, it is very reasonable. Paying $14 or less per year is very reasonable for the web site access, basis tracking, tax forms, telephone support, etc., that Vanguard must perform for every account. In fact, I would guess that it doesn't really cover the full cost and the rest of us have to pick up the balance.
Yes, it is excessive.... compared to Admiral shares, compared to Schwab, and now compared to Fidelity.
Higher and “excessive” aren’t the same thing, you know.
Bingo.

What remains to be seen is whether Fidelity's new TSM fund will have the same after-fee returns as Vanguard's VTSAX. The index they are tracking is slightly different, and historical evidence has shown that Vanguard may have less tracking error than Fidelity and Schwab. So in the end, the 'zero ER' may be a moot point. But frankly, 4 basis points is a moot point anyway IMO.

I wonder if people who think 4 basis points are very worthwhile take a similar stance with all other aspects of their lives, putting forth any amount of effort possible to potentially save a few bucks.
Check me where my math is wrong but on a $500K account that's $200 every year right? And $400 on a $1M account? I mean...that's a lot of beer. And it's every year, so start doing some multiplying, investing the extra, compounding returns...

Yes, I would stop to pick up a $100 bill, or even a $10 bill, I found lying on the street.
Yes, I haggle with my provider when my contract is up and my bill jumps, threaten to quit, to save money.
Yes, I park at off-site airport parking and take a shuttle, instead of on-airport long-term, to save $30.

Yes, yes, yes.
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Re: "Don't Obsess About Expense Ratios"

Post by Nate79 »

Whakamole wrote: Mon Aug 13, 2018 3:15 pm
Nate79 wrote: Mon Aug 13, 2018 3:08 pm
Whakamole wrote: Mon Aug 13, 2018 2:59 pm
Nate79 wrote: Mon Aug 13, 2018 2:41 pm
dewey wrote: Mon Aug 13, 2018 11:10 am When Vanguard was thumping the competition with unbelievably low ER's, it made sense for that cost to be a significant factor when choosing a provider. But once the fees are close to identical or with very little difference, it loses its compelling consideration compared to the past. That's what I take from the 'Don't obsess..." part. That said, I don't believe any of the others would have made the cost reductions if they weren't pinched by Vanguard to begin with. Without Vanguard, it's fair to say little would have changed. I credit Vanguard for being the trail blazer and I'm content to stay with them.
When was this?
https://investor.vanguard.com/mutual-fu ... file/VTSAX
Expense ratio as of 04/25/2018: 0.04%

This is 96% lower than the average expense ratio of funds with similar holdings.*
Emphasis theirs.
So the other 4% is Schwab and Fidelity? Certainly there are more expensive funds but I believe Schwab and Fidelity have been beating Vanguard for a number of years now.
That's not what Vanguard is stating. They are stating that the average expense ratio of funds with similar holdings is 96% higher than 4 basis points (which is 1% according to my math), not that they are cheaper than 96% of funds.
So it's a meaningless number that didn't answer the question. Got it. Vanguard was said to be thumping the competition. The competition is Schwab and Fidelity. I asked the poster when exactly was Vanguard thumping the competition because they are not today and haven't been for some time.
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Re: "Don't Obsess About Expense Ratios"

Post by Broken Man 1999 »

Given the massive inflows to Vanguard over the last several months, I think the competition is getting thumped pretty hard.

I would be interested in seeing fund inflows/outflows over the next few months.

Over the weekend I attempted to open a Fidelity brokerage and CMA account for some estate planning. Unfortunately, my old 401k plan showed up, and I couldn't be verified by the staff as the Fidelity 401k group isn't there over the weekend. Today I was able to get the 401k group to "release" me from my old account info, and hopefully I am going to be able to open the new account.

Once I get the account open, I am going to invest $1 in each of the new "zero" ER funds. I can then see exactly what the difference is over a longer period of time. Seems as good a method as any to be able to judge the real value of the new funds.

Hopefully I won't mess up my AA by adding these two funds. :D

I need to have a brick and mortar presence for a couple of things, and seemed like a good time to check out Fidelity. Can't see having a person have to drive to PA or AZ for certain activities that will need a face to face interaction.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 »

UpsetRaptor wrote: Mon Aug 13, 2018 3:16 pm
willthrill81 wrote: Sat Aug 11, 2018 10:05 pm
vineviz wrote: Sat Aug 11, 2018 8:46 pm
UpperNwGuy wrote: Sat Aug 11, 2018 8:11 pm
rkhusky wrote: Sat Aug 11, 2018 6:55 pm

The ER for Investor shares is not excessive, it is very reasonable. Paying $14 or less per year is very reasonable for the web site access, basis tracking, tax forms, telephone support, etc., that Vanguard must perform for every account. In fact, I would guess that it doesn't really cover the full cost and the rest of us have to pick up the balance.
Yes, it is excessive.... compared to Admiral shares, compared to Schwab, and now compared to Fidelity.
Higher and “excessive” aren’t the same thing, you know.
Bingo.

What remains to be seen is whether Fidelity's new TSM fund will have the same after-fee returns as Vanguard's VTSAX. The index they are tracking is slightly different, and historical evidence has shown that Vanguard may have less tracking error than Fidelity and Schwab. So in the end, the 'zero ER' may be a moot point. But frankly, 4 basis points is a moot point anyway IMO.

I wonder if people who think 4 basis points are very worthwhile take a similar stance with all other aspects of their lives, putting forth any amount of effort possible to potentially save a few bucks.
Check me where my math is wrong but on a $500K account that's $200 every year right? And $400 on a $1M account? I mean...that's a lot of beer. And it's every year, so start doing some multiplying, investing the extra, compounding returns...

Yes, I would stop to pick up a $100 bill, or even a $10 bill, I found lying on the street.
Yes, I haggle with my provider when my contract is up and my bill jumps, threaten to quit, to save money.
Yes, I park at off-site airport parking and take a shuttle, instead of on-airport long-term, to save $30.

Yes, yes, yes.
We're thrifty too. But if Fidelity has greater tracking error than VG, those 4 basis point 'savings' may well evaporate entirely. Recent results from the OP's article indicate that this could easily be the case. I would prefer to wait a couple of years to compare the after-fee performance of Fidelity's funds to Vanguard's before making the switch.
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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab »

Remember that tracking error can be positive.
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 »

Earl Lemongrab wrote: Mon Aug 13, 2018 4:09 pm Remember that tracking error can be positive.
That's true, but it appears to generally be a negative since deviating from the index in an unsystematic fashion generally results in underperformance over the long-term.
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Re: "Fidelity Offers New Zero-Cost Funds. Should You Switch?"

Post by passiveTiger »

Taylor Larimore wrote: Mon Aug 13, 2018 1:16 pm Bogleheads:

MoneyWatch posted an article today about the new Fidelity zero-cost funds. This is the link:

Fidelity Offers New Zero-Cost Funds. Should You Switch?

Best wishes.
Taylor
It's a balanced article.

It makes this core observation favoring Vanguard:
  • "It isn’t clear that paying nothing in fund expenses is a whole lot better than paying, say, 0.04%. There are other issues that are also of importance, like skill in replicating the underlying index, which index is tracked, and how much the fund makes from lending out the securities it owns and whether that money is credited to fund shareholders. Earlier this year, I looked at the performance of some major index funds in 2017. Tiny differences in annual expenses didn’t necessarily show up in fund returns."
and makes this related conclusion that is arguably a bit of a no-brainer:
  • "Should you move your money to Fidelity? I’m not. In my taxable account at Vanguard, I have funds with large unrealized capital gains and selling would mean big tax bills."
It also makes this core observation favoring Fidelity:
  • "While Fidelity’s lower expenses may not be significant, I think its scrapping of investment minimums is hugely important. Mutual funds are supposed to be the way for everyday Americans to tap into the financial markets, and yet lately the price of admission has become too steep for my taste. I think it’s great that Fidelity has dropped its investment minimums. Schwab, too, has no required minimum—at least for its index funds—which I also find admirable. We need to make it easy for folks to get started as investors. Cash-strapped families, who might be deterred by the $1,000-plus minimum required by so many fund companies, now have two great choices."
and makes this related conclusion that is also arguably a bit of a no-brainer:
  • "But if I were starting out, I might well favor Fidelity or Schwab over Vanguard, especially if I had a modest sum to invest—and especially if I was investing retirement account money."
Basically,
  • If you are at Vanguard (especially if you are in a taxable account) and you like Vanguard, you should stay at Vanguard.
  • If you are with no one (especially the younger and less resourceful you are), you should go to Fidelity or Schwab.
I think the Vanguard ride-or-die crew are limited to arguing for jumbo-size rollovers in regards to attracting new investors, because there is not a good argument for the smallest investors to grow balances at Vanguard with its current share classes and minimums, now.
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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger »

willthrill81 wrote: Mon Aug 13, 2018 3:47 pm
UpsetRaptor wrote: Mon Aug 13, 2018 3:16 pm
willthrill81 wrote: Sat Aug 11, 2018 10:05 pm
vineviz wrote: Sat Aug 11, 2018 8:46 pm
UpperNwGuy wrote: Sat Aug 11, 2018 8:11 pm

Yes, it is excessive.... compared to Admiral shares, compared to Schwab, and now compared to Fidelity.
Higher and “excessive” aren’t the same thing, you know.
Bingo.

What remains to be seen is whether Fidelity's new TSM fund will have the same after-fee returns as Vanguard's VTSAX. The index they are tracking is slightly different, and historical evidence has shown that Vanguard may have less tracking error than Fidelity and Schwab. So in the end, the 'zero ER' may be a moot point. But frankly, 4 basis points is a moot point anyway IMO.

I wonder if people who think 4 basis points are very worthwhile take a similar stance with all other aspects of their lives, putting forth any amount of effort possible to potentially save a few bucks.
Check me where my math is wrong but on a $500K account that's $200 every year right? And $400 on a $1M account? I mean...that's a lot of beer. And it's every year, so start doing some multiplying, investing the extra, compounding returns...

Yes, I would stop to pick up a $100 bill, or even a $10 bill, I found lying on the street.
Yes, I haggle with my provider when my contract is up and my bill jumps, threaten to quit, to save money.
Yes, I park at off-site airport parking and take a shuttle, instead of on-airport long-term, to save $30.

Yes, yes, yes.
We're thrifty too. But if Fidelity has greater tracking error than VG, those 4 basis point 'savings' may well evaporate entirely. Recent results from the OP's article indicate that this could easily be the case. I would prefer to wait a couple of years to compare the after-fee performance of Fidelity's funds to Vanguard's before making the switch.
There is not a huge argument for jumping from 0.04% ER VTSAX to the 0.03% ER Schwab fund or the 0.00% ER or 0.015% Fidelity Funds for ER alone.

There is a better argument for someone who has $10,000+ tax-advantaged in VTSAX to jump to Schwab or Fidelity for allocation purposes.

In this example, I am assuming someone who has enough to at least have one Admiral Shares fund, but not enough to properly allocate to U.S., international, etc. if that was something that they wanted to do. At Vanguard, you need $30,000 to create an equally weighted three-fund portfolio. At Fidelity or Schwab, you can create an equally weighted three-fund portfolio with ER lower than Admiral Shares using only $3. You can do a nicely allocated three-fund portfolio with $10 or even more finely tuned with $100.

There is an excellent argument to never be in VTSMX in the first place, now.

With no minimums and below Admiral Shares ER at either Schwab or Fidelity, there is not a good argument for someone to save $3,000 outside of the market, then put it all in VTSMX with a 0.14% ER after they save enough, and still not be able to allocate well outside of that fund after that investor accumulates $10,000 and the amount converts to Admiral Shares.
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 »

passiveTiger wrote: Mon Aug 13, 2018 5:29 pm
willthrill81 wrote: Mon Aug 13, 2018 3:47 pm
UpsetRaptor wrote: Mon Aug 13, 2018 3:16 pm
willthrill81 wrote: Sat Aug 11, 2018 10:05 pm
vineviz wrote: Sat Aug 11, 2018 8:46 pm
Higher and “excessive” aren’t the same thing, you know.
Bingo.

What remains to be seen is whether Fidelity's new TSM fund will have the same after-fee returns as Vanguard's VTSAX. The index they are tracking is slightly different, and historical evidence has shown that Vanguard may have less tracking error than Fidelity and Schwab. So in the end, the 'zero ER' may be a moot point. But frankly, 4 basis points is a moot point anyway IMO.

I wonder if people who think 4 basis points are very worthwhile take a similar stance with all other aspects of their lives, putting forth any amount of effort possible to potentially save a few bucks.
Check me where my math is wrong but on a $500K account that's $200 every year right? And $400 on a $1M account? I mean...that's a lot of beer. And it's every year, so start doing some multiplying, investing the extra, compounding returns...

Yes, I would stop to pick up a $100 bill, or even a $10 bill, I found lying on the street.
Yes, I haggle with my provider when my contract is up and my bill jumps, threaten to quit, to save money.
Yes, I park at off-site airport parking and take a shuttle, instead of on-airport long-term, to save $30.

Yes, yes, yes.
We're thrifty too. But if Fidelity has greater tracking error than VG, those 4 basis point 'savings' may well evaporate entirely. Recent results from the OP's article indicate that this could easily be the case. I would prefer to wait a couple of years to compare the after-fee performance of Fidelity's funds to Vanguard's before making the switch.
There is not a huge argument for jumping from 0.04% ER VTSAX to the 0.03% ER Schwab fund or the 0.00% ER or 0.015% Fidelity Funds for ER alone.

There is a better argument for someone who has $10,000+ tax-advantaged in VTSAX to jump to Schwab or Fidelity for allocation purposes.

In this example, I am assuming someone who has enough to at least have one Admiral Shares fund, but not enough to properly allocate to U.S., international, etc. if that was something that they wanted to do. At Vanguard, you need $30,000 to create an equally weighted three-fund portfolio. At Fidelity or Schwab, you can create an equally weighted three-fund portfolio with ER lower than Admiral Shares using only $3. You can do a nicely allocated three-fund portfolio with $10 or even more finely tuned with $100.

There is an excellent argument to never be in VTSMX in the first place, now.

With no minimums and below Admiral Shares ER at either Schwab or Fidelity, there is not a good argument for someone to save $3,000 outside of the market, then put it all in VTSMX with a 0.14% ER after they save enough, and still not be able to allocate well outside of that fund after that investor accumulates $10,000 and the amount converts to Admiral Shares.
To be frank, the investor with under $30k shouldn't be worried about single digit basis point differences in ERs. They should be focused on making more contributions to their accounts.
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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger »

willthrill81 wrote: Mon Aug 13, 2018 5:45 pm
passiveTiger wrote: Mon Aug 13, 2018 5:29 pm
willthrill81 wrote: Mon Aug 13, 2018 3:47 pm
UpsetRaptor wrote: Mon Aug 13, 2018 3:16 pm
willthrill81 wrote: Sat Aug 11, 2018 10:05 pm

Bingo.

What remains to be seen is whether Fidelity's new TSM fund will have the same after-fee returns as Vanguard's VTSAX. The index they are tracking is slightly different, and historical evidence has shown that Vanguard may have less tracking error than Fidelity and Schwab. So in the end, the 'zero ER' may be a moot point. But frankly, 4 basis points is a moot point anyway IMO.

I wonder if people who think 4 basis points are very worthwhile take a similar stance with all other aspects of their lives, putting forth any amount of effort possible to potentially save a few bucks.
Check me where my math is wrong but on a $500K account that's $200 every year right? And $400 on a $1M account? I mean...that's a lot of beer. And it's every year, so start doing some multiplying, investing the extra, compounding returns...

Yes, I would stop to pick up a $100 bill, or even a $10 bill, I found lying on the street.
Yes, I haggle with my provider when my contract is up and my bill jumps, threaten to quit, to save money.
Yes, I park at off-site airport parking and take a shuttle, instead of on-airport long-term, to save $30.

Yes, yes, yes.
We're thrifty too. But if Fidelity has greater tracking error than VG, those 4 basis point 'savings' may well evaporate entirely. Recent results from the OP's article indicate that this could easily be the case. I would prefer to wait a couple of years to compare the after-fee performance of Fidelity's funds to Vanguard's before making the switch.
There is not a huge argument for jumping from 0.04% ER VTSAX to the 0.03% ER Schwab fund or the 0.00% ER or 0.015% Fidelity Funds for ER alone.

There is a better argument for someone who has $10,000+ tax-advantaged in VTSAX to jump to Schwab or Fidelity for allocation purposes.

In this example, I am assuming someone who has enough to at least have one Admiral Shares fund, but not enough to properly allocate to U.S., international, etc. if that was something that they wanted to do. At Vanguard, you need $30,000 to create an equally weighted three-fund portfolio. At Fidelity or Schwab, you can create an equally weighted three-fund portfolio with ER lower than Admiral Shares using only $3. You can do a nicely allocated three-fund portfolio with $10 or even more finely tuned with $100.

There is an excellent argument to never be in VTSMX in the first place, now.

With no minimums and below Admiral Shares ER at either Schwab or Fidelity, there is not a good argument for someone to save $3,000 outside of the market, then put it all in VTSMX with a 0.14% ER after they save enough, and still not be able to allocate well outside of that fund after that investor accumulates $10,000 and the amount converts to Admiral Shares.
To be frank, the investor with under $30k shouldn't be worried about single digit basis point differences in ERs. They should be focused on making more contributions to their accounts.
To be frank, it does not have to be an either-or situation. Just at Vanguard.

An investor with $3 can get three funds for lower ER than Admiral Shares elsewhere when that investor can't even get Investor Shares in one fund at Vanguard.
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 »

passiveTiger wrote: Mon Aug 13, 2018 6:06 pm
willthrill81 wrote: Mon Aug 13, 2018 5:45 pm
passiveTiger wrote: Mon Aug 13, 2018 5:29 pm
willthrill81 wrote: Mon Aug 13, 2018 3:47 pm
UpsetRaptor wrote: Mon Aug 13, 2018 3:16 pm

Check me where my math is wrong but on a $500K account that's $200 every year right? And $400 on a $1M account? I mean...that's a lot of beer. And it's every year, so start doing some multiplying, investing the extra, compounding returns...

Yes, I would stop to pick up a $100 bill, or even a $10 bill, I found lying on the street.
Yes, I haggle with my provider when my contract is up and my bill jumps, threaten to quit, to save money.
Yes, I park at off-site airport parking and take a shuttle, instead of on-airport long-term, to save $30.

Yes, yes, yes.
We're thrifty too. But if Fidelity has greater tracking error than VG, those 4 basis point 'savings' may well evaporate entirely. Recent results from the OP's article indicate that this could easily be the case. I would prefer to wait a couple of years to compare the after-fee performance of Fidelity's funds to Vanguard's before making the switch.
There is not a huge argument for jumping from 0.04% ER VTSAX to the 0.03% ER Schwab fund or the 0.00% ER or 0.015% Fidelity Funds for ER alone.

There is a better argument for someone who has $10,000+ tax-advantaged in VTSAX to jump to Schwab or Fidelity for allocation purposes.

In this example, I am assuming someone who has enough to at least have one Admiral Shares fund, but not enough to properly allocate to U.S., international, etc. if that was something that they wanted to do. At Vanguard, you need $30,000 to create an equally weighted three-fund portfolio. At Fidelity or Schwab, you can create an equally weighted three-fund portfolio with ER lower than Admiral Shares using only $3. You can do a nicely allocated three-fund portfolio with $10 or even more finely tuned with $100.

There is an excellent argument to never be in VTSMX in the first place, now.

With no minimums and below Admiral Shares ER at either Schwab or Fidelity, there is not a good argument for someone to save $3,000 outside of the market, then put it all in VTSMX with a 0.14% ER after they save enough, and still not be able to allocate well outside of that fund after that investor accumulates $10,000 and the amount converts to Admiral Shares.
To be frank, the investor with under $30k shouldn't be worried about single digit basis point differences in ERs. They should be focused on making more contributions to their accounts.
To be frank, it does not have to be an either-or situation. Just at Vanguard.

An investor with $3 can get three funds for lower ER than Admiral Shares elsewhere when that investor can't even get Investor Shares in one fund at Vanguard.
$30k at 4 basis points = $12. That shouldn't be on anyone's radar. Their 'mental bandwidth' is more important than that.
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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger »

willthrill81 wrote: Mon Aug 13, 2018 6:19 pm
passiveTiger wrote: Mon Aug 13, 2018 6:06 pm
willthrill81 wrote: Mon Aug 13, 2018 5:45 pm
passiveTiger wrote: Mon Aug 13, 2018 5:29 pm
willthrill81 wrote: Mon Aug 13, 2018 3:47 pm

We're thrifty too. But if Fidelity has greater tracking error than VG, those 4 basis point 'savings' may well evaporate entirely. Recent results from the OP's article indicate that this could easily be the case. I would prefer to wait a couple of years to compare the after-fee performance of Fidelity's funds to Vanguard's before making the switch.
There is not a huge argument for jumping from 0.04% ER VTSAX to the 0.03% ER Schwab fund or the 0.00% ER or 0.015% Fidelity Funds for ER alone.

There is a better argument for someone who has $10,000+ tax-advantaged in VTSAX to jump to Schwab or Fidelity for allocation purposes.

In this example, I am assuming someone who has enough to at least have one Admiral Shares fund, but not enough to properly allocate to U.S., international, etc. if that was something that they wanted to do. At Vanguard, you need $30,000 to create an equally weighted three-fund portfolio. At Fidelity or Schwab, you can create an equally weighted three-fund portfolio with ER lower than Admiral Shares using only $3. You can do a nicely allocated three-fund portfolio with $10 or even more finely tuned with $100.

There is an excellent argument to never be in VTSMX in the first place, now.

With no minimums and below Admiral Shares ER at either Schwab or Fidelity, there is not a good argument for someone to save $3,000 outside of the market, then put it all in VTSMX with a 0.14% ER after they save enough, and still not be able to allocate well outside of that fund after that investor accumulates $10,000 and the amount converts to Admiral Shares.
To be frank, the investor with under $30k shouldn't be worried about single digit basis point differences in ERs. They should be focused on making more contributions to their accounts.
To be frank, it does not have to be an either-or situation. Just at Vanguard.

An investor with $3 can get three funds for lower ER than Admiral Shares elsewhere when that investor can't even get Investor Shares in one fund at Vanguard.
$30k at 4 basis points = $12. That shouldn't be on anyone's radar. Their 'mental bandwidth' is more important than that.
[OT comment removed by admin LadyGeek]

My point is (a) dollar 1 is invested (b) at a lower ER (c) with better asset allocation (or at least asset allocation for the person's taste). For the small investor, none of those three things can be done with $10,000 at Vanguard. At two competitors, all three can be accomplished with $10 pretty easy.

You're overlooking that competitors now offer three advantages to small (or at least smaller < $100-200k) investors, not just ER. "Vanguard goggles" will do that to you.
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Re: "Don't Obsess About Expense Ratios"

Post by nps »

willthrill81 wrote: Mon Aug 13, 2018 6:19 pm
passiveTiger wrote: Mon Aug 13, 2018 6:06 pm
willthrill81 wrote: Mon Aug 13, 2018 5:45 pm To be frank, the investor with under $30k shouldn't be worried about single digit basis point differences in ERs. They should be focused on making more contributions to their accounts.
To be frank, it does not have to be an either-or situation. Just at Vanguard.

An investor with $3 can get three funds for lower ER than Admiral Shares elsewhere when that investor can't even get Investor Shares in one fund at Vanguard.
$30k at 4 basis points = $12. That shouldn't be on anyone's radar. Their 'mental bandwidth' is more important than that.
Way more 'mental bandwidth' required to switch providers later when it represents more meaningful savings than to just select the lowest ER in the first place IMO.
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 »

passiveTiger wrote: Mon Aug 13, 2018 6:41 pm
willthrill81 wrote: Mon Aug 13, 2018 6:19 pm
passiveTiger wrote: Mon Aug 13, 2018 6:06 pm
willthrill81 wrote: Mon Aug 13, 2018 5:45 pm
passiveTiger wrote: Mon Aug 13, 2018 5:29 pm

There is not a huge argument for jumping from 0.04% ER VTSAX to the 0.03% ER Schwab fund or the 0.00% ER or 0.015% Fidelity Funds for ER alone.

There is a better argument for someone who has $10,000+ tax-advantaged in VTSAX to jump to Schwab or Fidelity for allocation purposes.

In this example, I am assuming someone who has enough to at least have one Admiral Shares fund, but not enough to properly allocate to U.S., international, etc. if that was something that they wanted to do. At Vanguard, you need $30,000 to create an equally weighted three-fund portfolio. At Fidelity or Schwab, you can create an equally weighted three-fund portfolio with ER lower than Admiral Shares using only $3. You can do a nicely allocated three-fund portfolio with $10 or even more finely tuned with $100.

There is an excellent argument to never be in VTSMX in the first place, now.

With no minimums and below Admiral Shares ER at either Schwab or Fidelity, there is not a good argument for someone to save $3,000 outside of the market, then put it all in VTSMX with a 0.14% ER after they save enough, and still not be able to allocate well outside of that fund after that investor accumulates $10,000 and the amount converts to Admiral Shares.
To be frank, the investor with under $30k shouldn't be worried about single digit basis point differences in ERs. They should be focused on making more contributions to their accounts.
To be frank, it does not have to be an either-or situation. Just at Vanguard.

An investor with $3 can get three funds for lower ER than Admiral Shares elsewhere when that investor can't even get Investor Shares in one fund at Vanguard.
$30k at 4 basis points = $12. That shouldn't be on anyone's radar. Their 'mental bandwidth' is more important than that.
[OT comment removed by admin LadyGeek]

My point is (a) dollar 1 is invested (b) at a lower ER (c) with better asset allocation (or at least asset allocation for the person's taste). For the small investor, none of those three things can be done with $10,000 at Vanguard. At two competitors, all three can be accomplished with $10 pretty easy.

You're overlooking that competitors now offer three advantages to small (or at least smaller < $100-200k) investors, not just ER. "Vanguard goggles" will do that to you.
I could just as easily accuse you of being biased against Vanguard, but that would be pointless. And half of my portfolio isn't even with Vanguard, so your "goggles" jab missed its mark.

If 4 basis points are worth it, then do it. Clearly it is to some people, but it isn't to me. Time will tell whether those 4 basis points are actually manifested in after-fee returns.
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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger »

willthrill81 wrote: Mon Aug 13, 2018 6:52 pm
passiveTiger wrote: Mon Aug 13, 2018 6:41 pm
willthrill81 wrote: Mon Aug 13, 2018 6:19 pm
passiveTiger wrote: Mon Aug 13, 2018 6:06 pm
willthrill81 wrote: Mon Aug 13, 2018 5:45 pm

To be frank, the investor with under $30k shouldn't be worried about single digit basis point differences in ERs. They should be focused on making more contributions to their accounts.
To be frank, it does not have to be an either-or situation. Just at Vanguard.

An investor with $3 can get three funds for lower ER than Admiral Shares elsewhere when that investor can't even get Investor Shares in one fund at Vanguard.
$30k at 4 basis points = $12. That shouldn't be on anyone's radar. Their 'mental bandwidth' is more important than that.
[OT comment removed by admin LadyGeek]

My point is (a) dollar 1 is invested (b) at a lower ER (c) with better asset allocation (or at least asset allocation for the person's taste). For the small investor, none of those three things can be done with $10,000 at Vanguard. At two competitors, all three can be accomplished with $10 pretty easy.

You're overlooking that competitors now offer three advantages to small (or at least smaller < $100-200k) investors, not just ER. "Vanguard goggles" will do that to you.
I could just as easily accuse you of being biased against Vanguard, but that would be pointless. And half of my portfolio isn't even with Vanguard, so your "goggles" jab missed its mark.

If 4 basis points are worth it, then do it. Clearly it is to some people, but it isn't to me. Time will tell whether those 4 basis points are actually manifested in after-fee returns.
It's about:
  • Yes, lower ERs,
  • But also $0 minimums,
  • That allow a variety of asset allocation with very few dollars.
For example, I am guessing you would not (or perhaps you would) recommend that someone accumulate $100k in something like the Vanguard Target Retirement 2065 Fund (VLXVX) with a 0.15% ER. To replicate the bond allocation of that fund using only Total (U.S.) Bond Admiral Shares, someone would need $100k.

Someone could replicate that allocation elsewhere and the ER is not even 0.02%. They also do not need $100k. They could use $10 or fine tune it even more with $100.

That is why it is worth it - possibly for some. Invested immediately with asset allocation at a low ER.

There are plenty of people here that wish there was an Admiral Shares version of the TR funds. They could make their own elsewhere for less than Admiral Shares ER, so I would not know why they are just wishing.
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Re: "Don't Obsess About Expense Ratios"

Post by triceratop »

passiveTiger wrote: Mon Aug 13, 2018 7:38 pm There are plenty of people here that wish there was an Admiral Shares version of the TR funds. They could make their own elsewhere for less than Admiral Shares ER, so I would not know why they are just wishing.
Rolling your own portfolio with mutual funds is different from TR or LS funds which require only contribution/withdrawal decisions, are auto-rebalancing and, in the case of TR funds, possess an automatic glide path. Saying "just replicate it yourself with a hand-rolled portfolio" is missing the point.
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Re: "Don't Obsess About Expense Ratios"

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I removed an off-topic post. As a reminder, see: General Etiquette
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Re: "Don't Obsess About Expense Ratios"

Post by AlphaLess »

I respectfully disagree with the core message of this post:
- don't obsess about expense ratios.

While we should not OBSESS about anything, quantitative considerations is what investing, and this site is all about.

Quantitative considerations include:
- expense ratios,
- minimum investments (to receive lower expense ratios),
- tax efficiency,
- tracking error excess returns (yes, there could be EXCESS returns in tracking errors),
- taxability of unrealized capital gains,
- simplicity.

Also please do note that a 3.5 bps difference is RATHER large, considering:
- expected future lower returns,
- and SENSITIVITY of various withdrawal strategy success rates considering withdrawal rates.

Using emotional and qualitative statements to DISQUALIFY a SUPERIOR investment option is not what this site is about. Not at all.
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 »

AlphaLess wrote: Mon Aug 13, 2018 8:00 pm I respectfully disagree with the core message of this post:
- don't obsess about expense ratios.

While we should not OBSESS about anything, quantitative considerations is what investing, and this site is all about.

Quantitative considerations include:
- expense ratios,
- minimum investments (to receive lower expense ratios),
- tax efficiency,
- tracking error excess returns (yes, there could be EXCESS returns in tracking errors),
- taxability of unrealized capital gains,
- simplicity.

Also please do note that a 3.5 bps difference is RATHER large, considering:
- expected future lower returns,
- and SENSITIVITY of various withdrawal strategy success rates considering withdrawal rates.

Using emotional and qualitative statements to DISQUALIFY a SUPERIOR investment option is not what this site is about. Not at all.
If you read the article in the OP, you'll note that there are other factors that should be considered in addition to expense ratios when determining which funds to invest in. Different funds often track different indexes, different fund providers are more adept at minimizing tracking error than others, etc.

I'm not married to anyone but my wife. If Fidelity, Schwab, Vanguard, or anyone else can consistently demonstrate over time that they can provide the best after-fee returns in the indexes that I want to invest in, they'll most likely get my money. But the difference will have to be worth my time and effort to make the change. For instance, I was finally able to rollover a 401k plan at an old employer to a traditional IRA, and this saved me 40-50 basis points (and increased my investment options dramatically). That was something I was chomping at the bits to do. Doing the same for 4 or fewer basis points doesn't hold the same appeal, and that's not irrational.

Something that I don't believe has been brought up yet in this thread is the opportunity cost of doing a rollover. Your money can easily be out of the market for several business days, and that could easily cost you several basis points. At a 5% annual return, every day that you aren't invested costs you about 2 basis points (about 250 trading days per year).
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Re: "Don't Obsess About Expense Ratios"

Post by vineviz »

AlphaLess wrote: Mon Aug 13, 2018 8:00 pm Using emotional and qualitative statements to DISQUALIFY a SUPERIOR investment option is not what this site is about. Not at all.
Respectfully, no one here is doing that.

I personally have no account at Vanguard and own just a small amount in one Vanguard mutual fund (less than 7% of my portfolio) so I feel comfortable that I'm being impartial when I say that small differences like the ones being discussed here in ER just don't make a significant difference in financial outcomes, even when compounded over long time periods.

There are too many other sources of variation in return to expect a fund with an ER of 0 bps to reliably outperform a fund with an ER of 4 bps. It might if EVERYTHING else about the funds was equal, but that's theoretical event that never occurs in reality. I've been guilty of spending an inordinate amount of time trying to decide between ETFs that differ by less than 5bps in ER, but the more I've studied the more I've realized that activity was fundamentally unproductive.

Costs matter. A lot. But obsessing over one particular source of cost, just because it's highly visible, when there are many other potential costs that might negate or even reverse the ER "advantage" is not a rational way to manage money.

I personally applaud Fidelity for continuing to lower the costs of the index funds. I'm less enthusiastic about the $0 minimum investments, if only because of the law of unintended consequences, but for many investors that feature will offer an immediate and significant benefit.

Honestly, though, words like "superior" and "excessive" and others that I've seen people use here are inherently subjective evaluations. No more than opinions, and not defensible by any objective criteria.

I'm prone to hyperbole myself at times, but in this case is it not sufficient to commend Fidelity for lowering costs without looking for a fight where none existed?
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Re: "Don't Obsess About Expense Ratios"

Post by Taylor Larimore »

vineviz:

Nice post!

Thank you and best wishes.
Taylor
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