"Don't Obsess About Expense Ratios"

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

Post by restingonmylaurels » Tue Aug 14, 2018 12:05 pm

rkhusky wrote:
Sun Aug 12, 2018 7:12 am
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.
Just found this thread and read all 200 posts quickly but I completely concur with rkhusky. Yes, 4 bp is $400 annually on $1m but if you have that much or more, you know that you do not care about such a small amount. As a longtime VG investor, chosen after surveying the entire industry, I would not consider moving even if they charged me a loyalty fee, there are just far too many benefits here, including the very rare quality in the financial industry of being able to believe what you are being told because you know who benefits from it. For those who insist on worrying about every nickle, willthrill81 has nailed the financial reasons (tracking error advantages, tax inefficiencies, etc.) for not moving.

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Earl Lemongrab
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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab » Tue Aug 14, 2018 1:03 pm

restingonmylaurels wrote:
Tue Aug 14, 2018 12:05 pm
Just found this thread and read all 200 posts quickly but I completely concur with rkhusky. Yes, 4 bp is $400 annually on $1m but if you have that much or more, you know that you do not care about such a small amount.
That is not correct. I have twice that, but $400 still means a lot to me. That didn't change. It might not matter to YOU but you aren't me.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: "Don't Obsess About Expense Ratios"

Post by retiringwhen » Tue Aug 14, 2018 1:58 pm

Earl Lemongrab wrote:
Tue Aug 14, 2018 1:03 pm
restingonmylaurels wrote:
Tue Aug 14, 2018 12:05 pm
Just found this thread and read all 200 posts quickly but I completely concur with rkhusky. Yes, 4 bp is $400 annually on $1m but if you have that much or more, you know that you do not care about such a small amount.
That is not correct. I have twice that, but $400 still means a lot to me. That didn't change. It might not matter to YOU but you aren't me.
My father-in-law always bought crap from Harbor Freight because it was cheaper, but it usually only lasted a year or two. I would buy better stuff (Craftsman or Husky) tools. He was happy because he got a deal, I was happy because my stuff lasted. The problem is for the $400 less am I still getting Craftsman quality investment? The jury is out.

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Earl Lemongrab
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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab » Tue Aug 14, 2018 2:03 pm

retiringwhen wrote:
Tue Aug 14, 2018 1:58 pm
Earl Lemongrab wrote:
Tue Aug 14, 2018 1:03 pm
restingonmylaurels wrote:
Tue Aug 14, 2018 12:05 pm
Just found this thread and read all 200 posts quickly but I completely concur with rkhusky. Yes, 4 bp is $400 annually on $1m but if you have that much or more, you know that you do not care about such a small amount.
That is not correct. I have twice that, but $400 still means a lot to me. That didn't change. It might not matter to YOU but you aren't me.
My father-in-law always bought crap from Harbor Freight because it was cheaper, but it usually only lasted a year or two. I would buy better stuff (Craftsman or Husky) tools. He was happy because he got a deal, I was happy because my stuff lasted. The problem is for the $400 less am I still getting Craftsman quality investment? The jury is out.
What does THAT have to do with it? Seriously. We're not talking about something cheaper but way inferior. It's also about your "if you have a lot, you don't care about a few hundred." Just flat out not true. It's not always a matter of cost, but of value.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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

Post by petrisunset » Tue Aug 14, 2018 2:54 pm

[Of course those with capital gains can invest in the new “ZERO” offerings. Just don’t realize the capital gains.]

Interesting point John. How would I do this?

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

Post by retiringwhen » Tue Aug 14, 2018 3:26 pm

Earl Lemongrab wrote:
Tue Aug 14, 2018 2:03 pm
retiringwhen wrote:
Tue Aug 14, 2018 1:58 pm
Earl Lemongrab wrote:
Tue Aug 14, 2018 1:03 pm
restingonmylaurels wrote:
Tue Aug 14, 2018 12:05 pm
Just found this thread and read all 200 posts quickly but I completely concur with rkhusky. Yes, 4 bp is $400 annually on $1m but if you have that much or more, you know that you do not care about such a small amount.
That is not correct. I have twice that, but $400 still means a lot to me. That didn't change. It might not matter to YOU but you aren't me.
My father-in-law always bought crap from Harbor Freight because it was cheaper, but it usually only lasted a year or two. I would buy better stuff (Craftsman or Husky) tools. He was happy because he got a deal, I was happy because my stuff lasted. The problem is for the $400 less am I still getting Craftsman quality investment? The jury is out.
What does THAT have to do with it? Seriously. We're not talking about something cheaper but way inferior. It's also about your "if you have a lot, you don't care about a few hundred." Just flat out not true. It's not always a matter of cost, but of value.
Value is the question, I agree. If you are saving $400 and see a net return lag of $1,200 in tracking error due to inferior execution and/or index construction (a two-part question for these funds) I would consider it an inferior product and less value. It would only take a .08% tracking error to lose $1,200 and Fidelity has done that several times in the past decade in their index funds.

To belabor my analogy: I do actually buy Harbor freight tools for one time needs (a single use torx-wrench for a fix I never intend to do again.) So there can be value in an inferior product. The lower cost got me enough value to solve the problem at hand. It could break before my job is complete, but I take that risk.

Investing even in retirement accounts is a long-term commitment as any funds movement is not friction-less (retirement accounts are easier than taxable granted.) Are you convinced the risk trade-off of buying an unproven product is worth saving 0.04% of your net worth?

I personally am going to watch until there is a good 2-3 years of results , then I'll review my current investments to see if they matching the value proposition and make appropriate moves if the Fidelity funds are better (I am very late in the accumulation phase, so new future funds are limited). I fully expect that the competitive landscape will address any marginal benefit one way or the other (e.g., Vanguard finds ways to lower their fees or demonstrate continued higher quality execution or Fidelity finds that loss-leaders are not leading to better bottom line and they ease back on subsidizing fees). But, if Fidelity is willing to continue to give away free beer and execute as well as Vanguard, I'll make at least a partial move. That is how I evaluate quality and value. I don't normally buy new or significantly remodeled cars until they've been out a year two. Did it once and regretted it.

I'll be more explicit, the perceived short-term value of the Fidelity Zero funds appears me to be fleeting and if review this in a year, the effort to move funds will likely have not returned much long-term value. Note, I normally do not move accounts from one brokerage to another to get signup bonuses either as the cost (my time and energy) / benefit (signup fee) do not look attractive.

There are non-financial benefits of making the move, and the more power to you if you value those, just don't justify them on clear economic benefits.

sorry, this got long. I find that folks are too black and white on this...

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

Post by Whakamole » Tue Aug 14, 2018 4:58 pm

retiringwhen wrote:
Tue Aug 14, 2018 3:26 pm
Value is the question, I agree. If you are saving $400 and see a net return lag of $1,200 in tracking error due to inferior execution and/or index construction (a two-part question for these funds) I would consider it an inferior product and less value. It would only take a .08% tracking error to lose $1,200 and Fidelity has done that several times in the past decade in their index funds.
With which funds, and has that differed from the corresponding Vanguard fund?

Looking at S&P 500 funds, Vanguard's VFIAX vs Fidelity's FUSVX tracking error:
- YTD: -0.03 vs -0.02
- 2017: -0.05 vs -0.04
- 2016: -0.03 vs -0.04
- 2015: -0.02 vs. -0.03
- 2014: -0.05 vs. -0.07
- 2013: -0.06 vs. -0.05

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

Post by retiringwhen » Tue Aug 14, 2018 5:28 pm

Whakamole wrote:
Tue Aug 14, 2018 4:58 pm
retiringwhen wrote:
Tue Aug 14, 2018 3:26 pm
Value is the question, I agree. If you are saving $400 and see a net return lag of $1,200 in tracking error due to inferior execution and/or index construction (a two-part question for these funds) I would consider it an inferior product and less value. It would only take a .08% tracking error to lose $1,200 and Fidelity has done that several times in the past decade in their index funds.
With which funds, and has that differed from the corresponding Vanguard fund?

Looking at S&P 500 funds, Vanguard's VFIAX vs Fidelity's FUSVX tracking error:
- YTD: -0.03 vs -0.02
- 2017: -0.05 vs -0.04
- 2016: -0.03 vs -0.04
- 2015: -0.02 vs. -0.03
- 2014: -0.05 vs. -0.07
- 2013: -0.06 vs. -0.05
I stand corrected, I was working from memory from the OP's reference to the WCI blog entry.

He actually points out that the Fidelity and Schwab Total Market Index Funds are on the same par as Vanguard, partly due to more aggressive securities lending...

The 0.25% percent variance i was recollecting was actually attributed to the actual index chosen to track. This could actually be a positive for Fidelity depending on the index construction (something to be revealed with time.)

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willthrill81
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Tue Aug 14, 2018 5:38 pm

retiringwhen wrote:
Tue Aug 14, 2018 3:26 pm
I personally am going to watch until there is a good 2-3 years of results , then I'll review my current investments to see if they matching the value proposition and make appropriate moves if the Fidelity funds are better (I am very late in the accumulation phase, so new future funds are limited). I fully expect that the competitive landscape will address any marginal benefit one way or the other (e.g., Vanguard finds ways to lower their fees or demonstrate continued higher quality execution or Fidelity finds that loss-leaders are not leading to better bottom line and they ease back on subsidizing fees). But, if Fidelity is willing to continue to give away free beer and execute as well as Vanguard, I'll make at least a partial move. That is how I evaluate quality and value. I don't normally buy new or significantly remodeled cars until they've been out a year two. Did it once and regretted it.
:thumbsup

That sounds like a prudent strategy to me, since it's what I'm planning to do as well. :wink:

There's no need to rush with the crowds into the toy store just yet. There will still be plenty available down the road, when we better understand whether the toys are truly what they are promoted to be. And the potential costs for waiting are tiny, almost minuscule. Maybe Vanguard will follow suit, maybe Fidelity will expand their zero ER offerings, and maybe Fidelity will place firm limits on how much can be held in the zero ER funds (seeds of that have already been sown).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by retiringwhen » Tue Aug 14, 2018 5:49 pm

willthrill81 wrote:
Tue Aug 14, 2018 5:38 pm
... and maybe Fidelity will place firm limits on how much can be held in the zero ER funds (seeds of that have already been sown).
Reminds me why I never opened an account at Red Neck bank.

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

Post by restingonmylaurels » Wed Aug 15, 2018 1:09 am

Earl Lemongrab wrote:
Tue Aug 14, 2018 1:03 pm
restingonmylaurels wrote:
Tue Aug 14, 2018 12:05 pm
Just found this thread and read all 200 posts quickly but I completely concur with rkhusky. Yes, 4 bp is $400 annually on $1m but if you have that much or more, you know that you do not care about such a small amount.
That is not correct. I have twice that, but $400 still means a lot to me. That didn't change. It might not matter to YOU but you aren't me.
If you have you $2m, staying with VG costs you $800 more a year. Your investment return is let's say 5% annually, so $100K a year. That represents less than 1% of your total return each year for the confidence of being a VG investor. Does not seem like much to me when I am earning $100k a year but let us use another analogy.

Say you have been with your wife for 30 years and of course are more than satisfied with the returns. :D Then along comes another woman who is 1% more attractive to you. Since you were smart enough to have had a clever attorney back in the day who drafted up an iron-clad prenup, you have the possibility of a cost-less exit. So would you leave your spouse of 30 years for the new looker who is 1% more attractive to you?

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Re: "Don't Obsess About Expense Ratios"

Post by nps » Wed Aug 15, 2018 6:27 am

restingonmylaurels wrote:
Wed Aug 15, 2018 1:09 am
Say you have been with your wife for 30 years and of course are more than satisfied with the returns. :D Then along comes another woman who is 1% more attractive to you. Since you were smart enough to have had a clever attorney back in the day who drafted up an iron-clad prenup, you have the possibility of a cost-less exit. So would you leave your spouse of 30 years for the new looker who is 1% more attractive to you?
Don't know why you jumped from discussing 4 bp to an analogy about 1% but let me ask: is 1% a significant number compared to your expectation for annual real portfolio growth over the long term? I would bet it represents between 20 - 50 percent of that expectation.

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

Post by restingonmylaurels » Wed Aug 15, 2018 7:19 am

nps wrote:
Wed Aug 15, 2018 6:27 am
restingonmylaurels wrote:
Wed Aug 15, 2018 1:09 am
Say you have been with your wife for 30 years and of course are more than satisfied with the returns. :D Then along comes another woman who is 1% more attractive to you. Since you were smart enough to have had a clever attorney back in the day who drafted up an iron-clad prenup, you have the possibility of a cost-less exit. So would you leave your spouse of 30 years for the new looker who is 1% more attractive to you?
Don't know why you jumped from discussing 4 bp to an analogy about 1% but let me ask: is 1% a significant number compared to your expectation for annual real portfolio growth over the long term? I would bet it represents between 20 - 50 percent of that expectation.
It is 1% of the expected return of 5%, so 4-5bp, not 20% of the expected return of 5% (100 bp), which would be material. If someone with investments of $2m believes $800 is enough to move away from all the benefits of their longtime investment company, I would suggest they should just call it a loyalty fee and move along to more important things, like how to joyfully spend that other $99.2k of return they take in per year.

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willthrill81
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Wed Aug 15, 2018 9:12 am

restingonmylaurels wrote:
Wed Aug 15, 2018 1:09 am
If you have you $2m, staying with VG costs you $800 more a year.
That assumes that all other factors are equal. It remains to be seen whether that is a valid assumption.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by BigMoneyNoWhammies » Wed Aug 15, 2018 9:43 am

retiredjg wrote:
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.
+1

My gut tells me this is bait to get you to switch so that they can sell you on other (likely actively managed) products that they do make money off of.

Nate79
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Re: "Don't Obsess About Expense Ratios"

Post by Nate79 » Wed Aug 15, 2018 9:49 am

What do you call a 5 page thread discussing the intimate details of expense ratios on the topic of Don't Obsess about Expense Ratios?

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Re: "Don't Obsess About Expense Ratios"

Post by CFOKevin » Wed Aug 15, 2018 10:02 am

bogleheads.org

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willthrill81
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Wed Aug 15, 2018 10:26 am

Nate79 wrote:
Wed Aug 15, 2018 9:49 am
What do you call a 5 page thread discussing the intimate details of expense ratios on the topic of Don't Obsess about Expense Ratios?
You must not have read our huge thread debating about whether EE bonds were a good buy or not. :D
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Don't Obsess About Expense Ratios"

Post by Admiral » Wed Aug 15, 2018 10:41 am

I think there is no question Vanguard will lower their fees. To what, I have no idea. They may lower them to zero and slightly raise fees on managed funds to make up the difference (though history shows that their fees tend to get lower over time, not higher).

As someone who has the bulk of retirement assets in Institutional or Inst Plus shares, my costs are barely a rounding error, so I will not switch. I also happen to like their philosophy and structure, so those make the company more "sticky" for me.

My belief is that the entire securities industry is scared stiff of both Vanguard and roboadvisers and that they will need to lower their fees or lose a lot of business. This industry has skated by for decades fleecing non-savvy investors with high-cost, low return products.

Perhaps the worm has finally turned.

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Re: "Don't Obsess About Expense Ratios"

Post by retiringwhen » Wed Aug 15, 2018 10:53 am

Admiral wrote:
Wed Aug 15, 2018 10:41 am
I think there is no question Vanguard will lower their fees. To what, I have no idea. They may lower them to zero and slightly raise fees on managed funds to make up the difference (though history shows that their fees tend to get lower over time, not higher).

As someone who has the bulk of retirement assets in Institutional or Inst Plus shares, my costs are barely a rounding error, so I will not switch. I also happen to like their philosophy and structure, so those make the company more "sticky" for me.

My belief is that the entire securities industry is scared stiff of both Vanguard and roboadvisers and that they will need to lower their fees or lose a lot of business. This industry has skated by for decades fleecing non-savvy investors with high-cost, low return products.

Perhaps the worm has finally turned.
A sucker is born every minute. Most people are still not indexing and even a non-trivial number of indexers are using advisors and funds with usurious ERs.... The margins are getting better and better every day, but there is still plenty of room to fleece customers.

My darker moments are spent thinking of ways Fidelity can use this advertising and promotion of Zero ER funds to find higher margin customers and separate them from a bit more cash. The possibilities are endless if the customer is not vigilant. The single easiest one is to move these accounts to marginally higher cost sweep accounts. Schwab makes huge amounts of money this way alone while advertising very attractive expense ratios as well.

The other dark moments are spent wondering just how much money is pulled by Vanguard into their opaque Vanguard Group that is not efficiently utilized thus raising costs. The transparency issue there has begun to bother me. Ironically, spending some time reading the Prospectus for the Fidelity ZERO funds made me realize they are oddly being a bit more forthcoming in the way the parent company is being impacted by these funds. The Vanguard Group, Inc. does not disclose much at all (if someone knows where to find such info, I would be very interested.)

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Re: "Don't Obsess About Expense Ratios"

Post by Admiral » Wed Aug 15, 2018 11:00 am

retiringwhen wrote:
Wed Aug 15, 2018 10:53 am
Admiral wrote:
Wed Aug 15, 2018 10:41 am
I think there is no question Vanguard will lower their fees. To what, I have no idea. They may lower them to zero and slightly raise fees on managed funds to make up the difference (though history shows that their fees tend to get lower over time, not higher).

As someone who has the bulk of retirement assets in Institutional or Inst Plus shares, my costs are barely a rounding error, so I will not switch. I also happen to like their philosophy and structure, so those make the company more "sticky" for me.

My belief is that the entire securities industry is scared stiff of both Vanguard and roboadvisers and that they will need to lower their fees or lose a lot of business. This industry has skated by for decades fleecing non-savvy investors with high-cost, low return products.

Perhaps the worm has finally turned.
A sucker is born every minute. Most people are still not indexing and even a non-trivial number of indexers are using advisors and funds with usurious ERs.... The margins are getting better and better every day, but there is still plenty of room to fleece customers.

My darker moments are spent thinking of ways Fidelity can use this advertising and promotion of Zero ER funds to find higher margin customers and separate them from a bit more cash. The possibilities are endless if the customer is not vigilant. The single easiest one is to move these accounts to marginally higher cost sweep accounts. Schwab makes huge amounts of money this way alone while advertising very attractive expense ratios as well.

The other dark moments are spent wondering just how much money is pulled by Vanguard into their opaque Vanguard Group that is not efficiently utilized thus raising costs. The transparency issue there has begun to bother me. Ironically, spending some time reading the Prospectus for the Fidelity ZERO funds made me realize they are oddly being a bit more forthcoming in the way the parent company is being impacted by these funds. The Vanguard Group, Inc. does not disclose much at all (if someone knows where to find such info, I would be very interested.)
From this article:
https://www.nytimes.com/2018/08/10/busi ... -fees.html
Lowering costs and easing access to investing is a universal good for consumers. But analysts and others who work in the industry said they expected Fidelity would try to sell more of its other wares — at least one of them probably in the form of advice. That is, the company may try to get investors to pay a separate fee to manage their money or perhaps try to entice them aboard its digital-investing platform, Fidelity Go, which charges 0.35 percent of assets total, including investment costs.
Aint no free lunch!

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Re: "Don't Obsess About Expense Ratios"

Post by Nate79 » Wed Aug 15, 2018 11:21 am

Admiral wrote:
Wed Aug 15, 2018 11:00 am
retiringwhen wrote:
Wed Aug 15, 2018 10:53 am
Admiral wrote:
Wed Aug 15, 2018 10:41 am
I think there is no question Vanguard will lower their fees. To what, I have no idea. They may lower them to zero and slightly raise fees on managed funds to make up the difference (though history shows that their fees tend to get lower over time, not higher).

As someone who has the bulk of retirement assets in Institutional or Inst Plus shares, my costs are barely a rounding error, so I will not switch. I also happen to like their philosophy and structure, so those make the company more "sticky" for me.

My belief is that the entire securities industry is scared stiff of both Vanguard and roboadvisers and that they will need to lower their fees or lose a lot of business. This industry has skated by for decades fleecing non-savvy investors with high-cost, low return products.

Perhaps the worm has finally turned.
A sucker is born every minute. Most people are still not indexing and even a non-trivial number of indexers are using advisors and funds with usurious ERs.... The margins are getting better and better every day, but there is still plenty of room to fleece customers.

My darker moments are spent thinking of ways Fidelity can use this advertising and promotion of Zero ER funds to find higher margin customers and separate them from a bit more cash. The possibilities are endless if the customer is not vigilant. The single easiest one is to move these accounts to marginally higher cost sweep accounts. Schwab makes huge amounts of money this way alone while advertising very attractive expense ratios as well.

The other dark moments are spent wondering just how much money is pulled by Vanguard into their opaque Vanguard Group that is not efficiently utilized thus raising costs. The transparency issue there has begun to bother me. Ironically, spending some time reading the Prospectus for the Fidelity ZERO funds made me realize they are oddly being a bit more forthcoming in the way the parent company is being impacted by these funds. The Vanguard Group, Inc. does not disclose much at all (if someone knows where to find such info, I would be very interested.)
From this article:
https://www.nytimes.com/2018/08/10/busi ... -fees.html
Lowering costs and easing access to investing is a universal good for consumers. But analysts and others who work in the industry said they expected Fidelity would try to sell more of its other wares — at least one of them probably in the form of advice. That is, the company may try to get investors to pay a separate fee to manage their money or perhaps try to entice them aboard its digital-investing platform, Fidelity Go, which charges 0.35 percent of assets total, including investment costs.
Aint no free lunch!
Vanguard is hoping their PAS service helps bolster their revenue as industry costs decrease and competition heats up:

http://www.philly.com/philly/blogs/inq- ... 80807.html
In June, Vanguard CEO Tim Buckley named Phil Korenman, 37, to head Personal Advisor Services (PAS). The company is counting on the unit, which charges clients fees to advise on their investments, to help boost Vanguard revenues as fund management fees fall toward zero amid industry automation and competition. Korenman had earlier led the group that developed PAS while he was a Vanguard corporate strategist.

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Earl Lemongrab
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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab » Wed Aug 15, 2018 11:49 am

restingonmylaurels wrote:
Wed Aug 15, 2018 1:09 am
Earl Lemongrab wrote:
Tue Aug 14, 2018 1:03 pm
restingonmylaurels wrote:
Tue Aug 14, 2018 12:05 pm
Just found this thread and read all 200 posts quickly but I completely concur with rkhusky. Yes, 4 bp is $400 annually on $1m but if you have that much or more, you know that you do not care about such a small amount.
That is not correct. I have twice that, but $400 still means a lot to me. That didn't change. It might not matter to YOU but you aren't me.
If you have you $2m, staying with VG costs you $800 more a year. Your investment return is let's say 5% annually, so $100K a year. That represents less than 1% of your total return each year for the confidence of being a VG investor. Does not seem like much to me when I am earning $100k a year but let us use another analogy.
There's no "staying" at Vanguard. Other than a small Roth for about six years in the early part of the century, I've been with other custodians. And it is more than that, because I generate thousands per year in brokerage bonuses.

Thinking of money as a percentage of some other sum obscures the reality. Like someone said upthread, I'll still pick up a ten off the street. I'm not going to pass it up because it's a tiny percentage of my investment returns. $800 is a lot of money no matter what else you have. At least to me. If it isn't to you, then do what you like.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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

Post by MichCPA » Wed Aug 15, 2018 12:05 pm

Earl Lemongrab wrote:
Wed Aug 15, 2018 11:49 am

Thinking of money as a percentage of some other sum obscures the reality. Like someone said upthread, I'll still pick up a ten off the street. I'm not going to pass it up because it's a tiny percentage of my investment returns. $800 is a lot of money no matter what else you have. At least to me. If it isn't to you, then do what you like.
If I saved my company 4 bps per year, I would be a freaking hero. If you spend an extra two hours to make the switch from one three fund portfolio to another and save $800, you are earning $400/hr and if you were to annualized that its 832,000. That's a pretty solid ROI.

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

Post by restingonmylaurels » Wed Aug 15, 2018 12:12 pm

Earl Lemongrab wrote:
Wed Aug 15, 2018 11:49 am
restingonmylaurels wrote:
Wed Aug 15, 2018 1:09 am
Earl Lemongrab wrote:
Tue Aug 14, 2018 1:03 pm
restingonmylaurels wrote:
Tue Aug 14, 2018 12:05 pm
Just found this thread and read all 200 posts quickly but I completely concur with rkhusky. Yes, 4 bp is $400 annually on $1m but if you have that much or more, you know that you do not care about such a small amount.
That is not correct. I have twice that, but $400 still means a lot to me. That didn't change. It might not matter to YOU but you aren't me.
If you have you $2m, staying with VG costs you $800 more a year. Your investment return is let's say 5% annually, so $100K a year. That represents less than 1% of your total return each year for the confidence of being a VG investor. Does not seem like much to me when I am earning $100k a year but let us use another analogy.
There's no "staying" at Vanguard. Other than a small Roth for about six years in the early part of the century, I've been with other custodians. And it is more than that, because I generate thousands per year in brokerage bonuses.

Thinking of money as a percentage of some other sum obscures the reality. Like someone said upthread, I'll still pick up a ten off the street. I'm not going to pass it up because it's a tiny percentage of my investment returns. $800 is a lot of money no matter what else you have. At least to me. If it isn't to you, then do what you like.
Like your profile graphic but will likely pass on the concept that $800 is a lot to a millionaire. If so, you must be pretty stressed right now with the markets down a good bit today. You could have easily lose $8000 in net worth on a day like this. As a long-time BHer, I would view $800 a year to be merely club dues. We would all have crossed the street for a tenner at one point, it is just at some level of wealth it seems a bit of a reach.
willthrill81 wrote:
Wed Aug 15, 2018 9:12 am
restingonmylaurels wrote:
Wed Aug 15, 2018 1:09 am
If you have you $2m, staying with VG costs you $800 more a year.
That assumes that all other factors are equal. It remains to be seen whether that is a valid assumption.
Yes, $800 could be the high end and it ramps down for reasons you already documented.

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

Post by retiringwhen » Wed Aug 15, 2018 12:14 pm

MichCPA wrote:
Wed Aug 15, 2018 12:05 pm
Earl Lemongrab wrote:
Wed Aug 15, 2018 11:49 am

Thinking of money as a percentage of some other sum obscures the reality. Like someone said upthread, I'll still pick up a ten off the street. I'm not going to pass it up because it's a tiny percentage of my investment returns. $800 is a lot of money no matter what else you have. At least to me. If it isn't to you, then do what you like.
If I saved my company 4 bps per year, I would be a freaking hero. If you spend an extra two hours to make the switch from one three fund portfolio to another and save $800, you are earning $400/hr and if you were to annualized that its 832,000. That's a pretty solid ROI.
If it took only 2 hours, I would do that for $400/hour. I can't imagine first that I could be ensured $800 savings. Second, simply doing the due diligence on fund changing would take me more than 2 hours. Of course, I have spent more than 2 hours on this thread..... :oops:

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

Post by MichCPA » Wed Aug 15, 2018 12:31 pm

retiringwhen wrote:
Wed Aug 15, 2018 12:14 pm

If it took only 2 hours, I would do that for $400/hour. I can't imagine first that I could be ensured $800 savings. Second, simply doing the due diligence on fund changing would take me more than 2 hours. Of course, I have spent more than 2 hours on this thread..... :oops:
I am not sure why switching between a small portfolio of index funds (BH style) would require a ton of research. You need to know the fees, the index being tracked and tracking error. Then do a quick scan of the forum for people's impression of the new broker. Making the actual switch wouldn't take that long, the new brokerage does most of the work.

EDIT: probably the tax efficiency too.

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Re: "Don't Obsess About Expense Ratios"

Post by retiringwhen » Wed Aug 15, 2018 12:58 pm

MichCPA wrote:
Wed Aug 15, 2018 12:31 pm
retiringwhen wrote:
Wed Aug 15, 2018 12:14 pm

If it took only 2 hours, I would do that for $400/hour. I can't imagine first that I could be ensured $800 savings. Second, simply doing the due diligence on fund changing would take me more than 2 hours. Of course, I have spent more than 2 hours on this thread..... :oops:
I am not sure why switching between a small portfolio of index funds (BH style) would require a ton of research. You need to know the fees, the index being tracked and tracking error. Then do a quick scan of the forum for people's impression of the new broker. Making the actual switch wouldn't take that long, the new brokerage does most of the work.
One, my retirement accounts all have custom beneficiary designations due to a specific estate plan issue. Getting that beneficiary designation completed will take at least 3 times this effort (and could even be a risk for some custodians to even support).

Second, never in my life have I not read the entire prospectus for a fund before investing. I cannot read with comprehension in the time frames stated.

Custodian transfers and investment activities to change funds is not a trivial matter. Being out of the market for a few days during transfer and making the necessary transaction requests and monitor their status are easily dwarfing. You are doing three things here. 1.) creating a new account and all the details of that, 2.) requesting and completing a custodian transfer (including request to liquidate funds, I assume) 3.) request and track the execution of the purchase.

This little litany reminds me that again the risk of being out of the market even one day has the potential to dwarf the cost savings by 10 to 20 times.

E.g., movements between .5 to 1.0% in a day are not unusual in the market. if the market moves against you by 1% it would take 25 YEARS to recover that loss in better expense ratio (assuming .04% ER Savings.) a tiny move of only .2% in a day would take 5 years to recover!

This points out that the whole ER discussion is really lost in the weeds. Transnational friction risks/costs easily dwarf any ER discussions less then somewhere around .2% really. If you have OTHER reasons to move, then ER can easily be the deciding factor, but don't loose the context of any moves to optimize could be far less optimal on another tangent.

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

Post by rkhusky » Wed Aug 15, 2018 12:59 pm

Admiral wrote:
Wed Aug 15, 2018 10:41 am
I think there is no question Vanguard will lower their fees. To what, I have no idea. They may lower them to zero and slightly raise fees on managed funds to make up the difference (though history shows that their fees tend to get lower over time, not higher).
Vanguard’s philosophy is to have each fund be self-supporting. If they continue with that then I would not expect them to offer loss leader funds. I have seen a Vanguard fund’s ER slightly increase, presumably because the fund’s expenses increased.

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Earl Lemongrab
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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab » Wed Aug 15, 2018 1:38 pm

restingonmylaurels wrote:
Wed Aug 15, 2018 12:12 pm
Like your profile graphic but will likely pass on the concept that $800 is a lot to a millionaire. If so, you must be pretty stressed right now with the markets down a good bit today. You could have easily lose $8000 in net worth on a day like this. As a long-time BHer, I would view $800 a year to be merely club dues. We would all have crossed the street for a tenner at one point, it is just at some level of wealth it seems a bit of a reach.
You're using mental accounting to make one dollar less valuable than another. If someone took $100 out of your wallet at the gym, would you shrug it off as unimportant because you have a lot? Most wouldn't.

Just because those dollars are somehow associated with an investment, doesn't make them less valuable. They spend the same.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: "Don't Obsess About Expense Ratios"

Post by RCL » Wed Aug 15, 2018 5:24 pm

Gee, I wonder if Fido is going to change the names of their funds...again? Maybe they can get some people to buy into funds they thought were one thing, but turned out to be something else.
Must keep the customer confused. Okay, that was sarcasm

I would be more excited if Fido's Total Stock Market Index Fund (FSTVX) would quit generating LTCG's .....unlike VG's Total Stock Market Index Fund (VTSAX) which doesn't generate any (or hasn't in the last few years anyway).

I think it is never a good idea to buy a "New" fund; until it has time to prove it's self.
Waiting also gives you a chance to understand what you are investing in, which follows the BH's mantra.
It Is Best To Consult Others Before Taking Unusual Actions

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

Post by MichCPA » Wed Aug 15, 2018 5:34 pm

retiringwhen wrote:
Wed Aug 15, 2018 12:58 pm

One, my retirement accounts all have custom beneficiary designations due to a specific estate plan issue. Getting that beneficiary designation completed will take at least 3 times this effort (and could even be a risk for some custodians to even support). [...]

Second, never in my life have I not read the entire prospectus for a fund before investing. I cannot read with comprehension in the time frames stated.

Custodian transfers and investment activities to change funds is not a trivial matter. [...]

This little litany reminds me that again the risk of being out of the market even one day has the potential to dwarf the cost savings by 10 to 20 times.

This points out that the whole ER discussion is really lost in the weeds. Transnational friction risks/costs easily dwarf any ER discussions less then somewhere around .2% really. If you have OTHER reasons to move, then ER can easily be the deciding factor, but don't loose the context of any moves to optimize could be far less optimal on another tangent.

EDITED FOR LENGTH
The timing thing is an issue whenever you switch and can cut both ways. I won out on that when I rolled my old 401k into my new one, but I admit it is luck not skill. You would move the existing mutual funds, not just the money. You wouldn't want to sell existing holdings with gains anyway. The tax cost of doing that in one fell swoop would destroy you. This would obviously cut down on your ER savings, but a $2 million portfolio is going to spin off enough dividends and gains for you to take advantage of it in the long run. The only cost would be your time and like you are implying everyone will have a different calculation there. For most people, I think you could still make a strong case to switch.

I get that there are person specific issues with switching; congratulations on being successful enough to make things complicated. lol. As far as the prospectuses, with a three fund portfolio you are switching out of one set of S&P 500, Ex-US and Bond indexes for another. Given the overlap, reading each prospectus would seem less important to me, but more power to you.

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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger » Wed Aug 15, 2018 7:01 pm

restingonmylaurels wrote:
Tue Aug 14, 2018 12:05 pm
Like your profile graphic but will likely pass on the concept that $800 is a lot to a millionaire. If so, you must be pretty stressed right now with the markets down a good bit today. You could have easily lose $8000 in net worth on a day like this. As a long-time BHer, I would view $800 a year to be merely club dues. We would all have crossed the street for a tenner at one point, it is just at some level of wealth it seems a bit of a reach.
I am Flagship at Vanguard, and I consider $800 a lot of money - particularly when I do not have to do much to get it. ER and market return are not analogous. Market return goes up, down, and sideways, but ER is just a constant tiny trickle of blood loss.

That said, going from 0.04% ER to 0.015% or even 0.00% ER is admittedly not the biggest deal, although no one here would complain, if Vanguard dropped Admiral Shares ERs to Institutional Plus ERs tomorrow.

If those in Investor Shares also got that deal, they would be happy, too, and that is the bigger deal in regards to the Fidelity changes. The bigger deal is people in 0.14% ER and higher moving to 0.015% or 0.00% or the uninvested who are still accumulating $1,000 or $3,000 being invested right away with what they have at those lower ERs. It is also a good deal for those accumulating in a Target Retirement or LifeStrategy fund that have not accumulated enough to do their preferred allocations using individual Admiral Shares funds to knock off 0.10% or more in ER at Vanguard.

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

Post by dwickenh » Sat Aug 18, 2018 6:53 am

Leif wrote:
Sat Aug 11, 2018 7:31 pm
dwickenh wrote:
Sat Aug 11, 2018 11:09 am
Anyone that thinks there wont be sales pitches is kidding themselves.
Perhaps your experience is different, but I've not received any sales pitches from Fidelity. I've been with Fidelity for over 30 years. I have no reason to think they will start now.
Per Jonathon Clements recent article:


Instead, investors need to be leery of a subtler bait-and-switch. Fidelity’s zero- and minimal-cost index funds are open-end mutual funds, not exchange-traded index funds. Why go that route? Fidelity wants folks to open accounts at Fidelity itself, rather than having an account at, say, Schwab and using that to buy a low-cost Fidelity ETF. Fidelity’s hope is to build lifelong relationships with customers, who might start out with index funds that make no money for Fidelity, but end up owning Fidelity’s pricier merchandise. My advice: If you have a fondness for your financial future, stick with the cheap stuff.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Re: "Don't Obsess About Expense Ratios"

Post by UpperNwGuy » Sat Aug 18, 2018 7:30 am

I have full confidence in my ability to restrain my Fidelity purchases to the cheap stuff. Upselling and bait-and-switch won't work on me.
Buy-and-hold retired investor with a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

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

Post by Leif » Sat Aug 18, 2018 9:38 am

dwickenh wrote:
Sat Aug 18, 2018 6:53 am
Leif wrote:
Sat Aug 11, 2018 7:31 pm
dwickenh wrote:
Sat Aug 11, 2018 11:09 am
Anyone that thinks there wont be sales pitches is kidding themselves.
Perhaps your experience is different, but I've not received any sales pitches from Fidelity. I've been with Fidelity for over 30 years. I have no reason to think they will start now.
Per Jonathon Clements recent article:


Instead, investors need to be leery of a subtler bait-and-switch. Fidelity’s zero- and minimal-cost index funds are open-end mutual funds, not exchange-traded index funds. Why go that route? Fidelity wants folks to open accounts at Fidelity itself, rather than having an account at, say, Schwab and using that to buy a low-cost Fidelity ETF. Fidelity’s hope is to build lifelong relationships with customers, who might start out with index funds that make no money for Fidelity, but end up owning Fidelity’s pricier merchandise. My advice: If you have a fondness for your financial future, stick with the cheap stuff.
Well perhaps Jonathon's experience if different. I think there is a difference in getting a "sales pitch" versus them having a sale with the hope that you will also buy something else. I've never felt any sales pressure from Fidelity. I like the analogy of a credit card. You may get and use a credit card with a high cash back. The credit card company may hope you run a balance and they earn the fees. But if you pay it off each month, as I do, then those with a balance are financing that cash back.

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

Post by dwickenh » Sat Aug 18, 2018 10:13 am

Leif wrote:
Sat Aug 18, 2018 9:38 am
dwickenh wrote:
Sat Aug 18, 2018 6:53 am
Leif wrote:
Sat Aug 11, 2018 7:31 pm
dwickenh wrote:
Sat Aug 11, 2018 11:09 am
Anyone that thinks there wont be sales pitches is kidding themselves.
Perhaps your experience is different, but I've not received any sales pitches from Fidelity. I've been with Fidelity for over 30 years. I have no reason to think they will start now.
Per Jonathon Clements recent article:


Instead, investors need to be leery of a subtler bait-and-switch. Fidelity’s zero- and minimal-cost index funds are open-end mutual funds, not exchange-traded index funds. Why go that route? Fidelity wants folks to open accounts at Fidelity itself, rather than having an account at, say, Schwab and using that to buy a low-cost Fidelity ETF. Fidelity’s hope is to build lifelong relationships with customers, who might start out with index funds that make no money for Fidelity, but end up owning Fidelity’s pricier merchandise. My advice: If you have a fondness for your financial future, stick with the cheap stuff.
Well perhaps Jonathon's experience if different. I think there is a difference in getting a "sales pitch" versus them having a sale with the hope that you will also buy something else. I've never felt any sales pressure from Fidelity. I like the analogy of a credit card. You may get and use a credit card with a high cash back. The credit card company may hope you run a balance and they earn the fees. But if you pay it off each month, as I do, then those with a balance are financing that cash back.
I am thinking that your ability to pay off the credit card in full is likely better than the average person. We may not be the targets of
the marketing for these funds. Zero expense and no minimum is likely aimed at a different target. I am glad you have been treated well
at Fidelity, and I am considering opening an account there as well. I am going by my life experience as far as the possible up-sell of
other funds. " There is no free lunch" resonates with me.

Best to you,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Earl Lemongrab
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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab » Sat Aug 18, 2018 10:51 am

Why would I worry about what the company offering the deal hopes? I don't avoid supermarkets with stuff on sale either.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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

Post by tuningfork » Sat Aug 18, 2018 11:00 am

I'm wondering if the same people here not obsessing about expense ratios are the same people in the other thread obsessing over Vanguard's web site change that makes seeing expense ratios an extra click away. :greedy

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

Post by Leif » Sat Aug 18, 2018 11:18 am

dwickenh wrote:
Sat Aug 18, 2018 10:13 am
I am thinking that your ability to pay off the credit card in full is likely better than the average person. We may not be the targets of
the marketing for these funds. Zero expense and no minimum is likely aimed at a different target. I am glad you have been treated well
at Fidelity, and I am considering opening an account there as well. I am going by my life experience as far as the possible up-sell of
other funds. " There is no free lunch" resonates with me.

Best to you,

Dan
Of course. When a supermarket puts Coke on sale do they want you to walk in, buy a case, then leave? But as long as I don't get a call from the supermarket asking me to upgrade to champagne I will be fine.

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

Post by NYCguy » Sun Aug 19, 2018 6:58 am

I have approximately $10 million split evenly between Fidelity and Vanguard. Part of how I have accumulated so much investment assets has been because I pay attention to tax efficiency and expenses.

An extra 4 basis points on $5 million at Vanguard costs me and additional $2,000 a year for the privilege of doing business with them. I do not tend to think of expenses in 1 year terms but rather how much something cost me over 10 or 20 years. In this case, with compounding it would cost me probably closer to $30,000 for making a decision to stay with Vanguard today for 20+ years. Even with my substantial assets and income, I pay attention to $2,000 or $30,000 decisions.

With that context, I found the Fidelity 0% ER announcement more of a curiosity than anything actionable for me at this point and my advice for anyone at the beginning of their accumulation phase would be to probably do the same.

My reasons are:

1. Trust. I view both companies as generally trustworthy or I would not be doing business with them but I give a material edge to Vanguard. It would not surprise me that in the future Fidelity would re-introduce a modest ER. Why? Because if they need to increase earnings for shareholders, that decision would be too easy to pass up. In the meantime, it will be tax inefficient for investors (like me) to switch out, and they would correctly guess that most wouldn’t switch. I do not think that Vanguard would ever play that game.

2. Securities Lending. In the five pages of comments, this has barely been mentioned. Professionally, I have some visibility into securities lending and I view it as picking up pennies in front of a steamroller. It is a very low risk high consequence activity and when a black swan event occurs some people in this business will be crushed. I suspect that both Fidelity and Vanguard are very good and careful with their securities lending business. I would suspect that the party that is relying on that revenue for profitability will be tempted to take greater risk. The edge for me on this issue goes to Vanguard.

3. Tax efficiency and tracking error. This has been exhaustively discussed. I’m in the camp that it is likely Vanguard will win this race, but only time will tell. At most I suspect, Fidelity will fight hard to achieve a tie.

I am likely to consolidate my assets at either Fidelity or Vanguard in the next five years and until a few years ago it was a foregone conclusion that Vanguard would receive my Fidelity assets. I have given both firms a hard look recently and have been impressed with Fidelity but 0% ER’s on some important funds is not going to be a reason for me.

Sorry for piling on for those who are looking for this thread to end. I obsess like many bogleheads.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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