Does Fidelity offer the best index products for a passive investor compared to Vanguard

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Elysium
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Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Elysium » Fri Oct 12, 2018 11:45 am

I had raised this difference in underlying indexes between Fidelity and Vanguard in another thread. I think it merits a broader discussion in a separate thread of it's own. I am not sure if this was addressed before on the forum, if so I request to merge the threads.

Anyhow, here are some of main points:

1. Fidelity dropped ER and minimums and went on a huge marketing campaign directly challlenging Vanguard
2. Total Market Index funds seems to be comparable between the two, and so are the bond index funds
3. Vanguard uses CRSP indexes and Fidelity uses Russell Indexes for some funds (not sure what all but Large Value is one)
4. Vanguard offers Factor based index funds, Fidelity does not (yet)
5. Vanguard offers index funds not offered by Fidelity, such as:
Small Value Index, Small Growth Index, Dividend Appreciation Index, High Divided Yield Index, Intl Dividend Appreciation Index, Mid-cap Value Index, on an on ..

Given that, is Fidelity the best shop for a passive investor worthy enoough to be considered above Vanguard, let alone switching for an existing investor.

Unless you are a Total Market investor, Fidelity does not offer all the building blocks available for a passive investor, on top of that differences in index construction can be very costly to the investor. For instance, Vanguard uses CRSP index and Fidelity uses Russell 1000 value index for the large value fund. Fidelity fund has trailed Vanguard fund by a large margin in its short existence. This wouldn't be a problem if the variations between indexes smoothen out over time, however, evidence shows some indexes are better constructured to capture some of the factors better than other indexes.

Is Fidelity using indexes that are cheaper to licence compared to Vanguard? If so, do they really have innovation and customers best interest in mind in offering the best products or improving existing products as opposed to cheap marketing slogans based on expense ratio alone. Are they cutting cost by offering cheaper licensed products that may not perform as well to make up for the reduced ER marketing campaign.

What about the opportunity cost of not having products mentioned above offered by Vanguard.

This is not a pro Vanguard or anti Fidelity thread. I wish to have a discussion on the true merits that takes all aspects of passive investing into consideration with total returns over an investors life time into consideration. Customer Service isnt a factor for this discussion. We assume we will accept bare bones service as long as we get best buidling blocks available.

As an additional resource for your consideration, here is a paper by Vanguard on differences in index construction:
https://americas.vanguard.com/docs/lite ... k-tlrv.pdf
Last edited by Elysium on Fri Oct 12, 2018 12:47 pm, edited 1 time in total.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Jack FFR1846 » Fri Oct 12, 2018 12:00 pm

What indexes do you want is the question that you'd need to answer first. If you plan to slice and dice like you're Merriman, then Vanguard is your place to go. If you're looking for a 3 fund in order to own the market then either do the job.

Part of the cost cutting that allows Fidelity to offer zero ER index funds now is that they are not following existing indexes. They made up their own. I'd call that "smart beta". The difference is that instead of making up boutique smart beta fund, getting small investments and charging huge fees, they've created an index that follows *something*. If you're a stickler and really, really, really want to follow some existing index, then Vanguard is probably your place. I'm not. To me, VTI, SCHB, FSTVX, FZROX, itot are all the same. Or I've set my tolerance such that I don't care about the differences. Heck, I throw SCHX, SPY and all the rest of the S&P-like 500 funds and ETFs in that bowl.

So it sort of depends on what you want. I don't think any brokerage is THE best for everyone. I'm pretty happy with the 4 brokerages I have and have considered adding a 5th for a while. Just haven't pulled the trigger because of the association with the Evil Empire (Merrill Edge and BoA).
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by livesoft » Fri Oct 12, 2018 12:01 pm

I want to know more about the tax efficiency of these funds because I have to invest in a taxable account.
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by arf30 » Fri Oct 12, 2018 12:08 pm

Vanguard would be the only place I'd do mutual funds in a taxable account due to tax efficiency. They also have better money market funds than anyone else. Everything else is pretty equal or better at competitors.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by stan1 » Fri Oct 12, 2018 12:10 pm

Vanguard, Blackrock iShares, State Street SPDRs, and Schwab all offer low cost index ETFs that are transportable to different brokerages at no additional cost for taxable investors. Mutual funds less so. Vanguard also has proven past performance of lowering expense ratios of existing funds/ETFs which is important for taxable investors. iShares and Fidelity have not always done this.

Also I think it remains to be seen what percentage of securities lending revenue comes back to investors in the Fidelity ZERO funds, correct? Maybe it will also be zero?

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by lukestuckenhymer » Fri Oct 12, 2018 12:11 pm

I've been an immense fan of Vanguard not only because of low ERs, but because of their lack of LTCG distributions. However, if I was a millennial with zero saved towards my retirement and now I have the ability to get in on the ground floor with zero minimum balance and zero fees, I think Fidelity is the clear choice. Because of LTCG, taxable is another story, but for tax-advantaged investing (especially for new investors), Fidelity looks very attractive at the moment.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Angst » Fri Oct 12, 2018 12:26 pm

lukestuckenhymer wrote:
Fri Oct 12, 2018 12:11 pm
I've been an immense fan of Vanguard not only because of low ERs, but because of their lack of LTCG distributions. However, if I was a millennial with zero saved towards my retirement and now I have the ability to get in on the ground floor with zero minimum balance and zero fees, I think Fidelity is the clear choice. Because of LTCG, taxable is another story, but for tax-advantaged investing (especially for new investors), Fidelity looks very attractive at the moment.

There is nothing "clear" about this. Only time will tell. I fully expect that the future performance difference between the respective Vanguard and Fidelity TSM products will be measured in single-digit basis points, but I am not at all "clear" on which one will be the winner. As has already been discussed ad nauseam in that past, giant thread, there are a fair number of intelligent, well-supported reasons for leaning slightly towards Vanguard winning the race. But as I already said, this outcome is anything but "clear". In the real world, it probably doesn't matter a whit. There are much bigger investing issues affecting one's future success which overwhelm this somewhat worn-out discussion topic.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by nisiprius » Fri Oct 12, 2018 12:37 pm

It's like comparing any two almost-indistinguishable products. It's like arguing about whether Coke or Pepsi is best, Duracell or Energizer, Toyota versus Honda. At one point, advertisers and regulators seemed to have agreed on the formula "No [kind of product] is better than [our product.]" I like that formulation. I'll accept "no index funds are better than Fidelity's." But I believe it's equally true that "no index funds are better than Vanguard's."

In real life, the decision comes down to what I'll call "linkages." Due to transaction fees charged at brokerages, it is difficult to hold a random mixture of index funds from different providers at a single brokerage without paying a transaction fee, and--in the case of index funds with a lower-ER $10,000 minimum share class, Vanguard's Admiral or Fidelity's Premium--with availability of the lower-cost share class.

For example, I personally use only three actual Vanguard index funds: Total Stock, Admiral shares; Total International Stock, Admiral; and Total Bond, Admiral shares. I could move to Fidelity, and I would accept a statement that Vanguard Total Stock is no better than Fidelity Zero Total Market, Vanguard Total International is no better than Fidelity Zero International. At the moment, there is no Fidelity Zero bond index fund, but I would accept that Total Bond is no better than Fidelity US Bond Index Fund (FBIDX and FSITX, both with 0.025% ER). Yes, I could move to Fidelity.

Now, Fidelity has storefronts, Vanguard doesn't. If I wanted a storefront Fidelity would be better. But I don't. Vanguard has a low-cost currency-hedged international bond index fund, Fidelity doesn't. If I wanted a fund like that, Vanguard would be better. But I don't.

Vanguard has a wider range of index funds, including categories like a mid-cap index fund, a small-cap value index fund, and a high dividend yield index fund. If I wanted to buy one of those index funds, Fidelity has no equivalent, so Vanguard would be better. But I don't.

Back in the days when 100-millimeter cigarettes were a fad, one company came up with cigarettes that were 101 millimeters, and, honest to gosh, the advertising slogan "a silly millimeter longer." Would you say those were better cigarettes? They were, literally, measurably better!

Yes, Fidelity has, for some decades, offered index funds that seem pretty much as good as Vanguard's. And, yes, the zero funds have a lower expense ratio than Vanguard's. A silly millimeter longer. Good marketing.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Elysium » Fri Oct 12, 2018 1:04 pm

What about differences in index construction, optimizations, block trading strategies, tax efficiency, securities lending, licensing, and above all experience matters, doesn't it? Vanguard has many years of expertise built into passive investing strategies so much that it is their core competency as opposed to Fidelity while not totally new are less experienced and not a core focus area of their expertise. Would someone trust Fidelity to overcome all of these factors to deliver better risk adjusted returns over time even with tiny advantage in expense ratios.

Call me skeptical, as I am doubtful Fidelity index products will deliver same overall cost / benefit value compared to Vanguard over time. The key aspect here is we have to consider it holistically from all angles possible and not just tiny differences in ER.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by robertmcd » Fri Oct 12, 2018 1:12 pm

With all the free ETF trades at Vanguard now it is hard to beat because you can TLH between vanguard ETFs, ishares, schwab, and spdr. Vanguard also has the best money market funds, best municipal and active bond funds, and best multifactor fund in my opinion (VFMF). The other brokerages just stay .01 ER ahead of vanguard but in the end this is meaningless. Not to mention no boglehead should be using a non vanguard mutual fund in taxable. ETF's or vanguard mutual funds w/ ETF share class are the only option in taxable.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Da5id » Fri Oct 12, 2018 1:14 pm

Elysium wrote:
Fri Oct 12, 2018 1:04 pm
Call me skeptical, as I am doubtful Fidelity index products will deliver same overall cost / benefit value compared to Vanguard over time. The key aspect here is we have to consider it holistically from all angles possible and not just tiny differences in ER.
Time will tell. In either case, we tend to take the "Costs Matter" thing a bit to the extremes here. If, converted to actual dollars, the ER cost difference is not significant to you, other factors may dominate. And for the taxable accounts certainly how efficiently it is managed may swamp that. The Costs Matter thing is obviously a much bigger deal when comparing funds with 1.5% ER (and a 5% sales load for good measure) vs cheap index funds than it is comparing two index funds with different, but minuscule, costs.

That said, I'd not be afraid to use Fidelity's funds. I just don't currently see a need to switch.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by lukestuckenhymer » Fri Oct 12, 2018 1:21 pm

Angst wrote:
Fri Oct 12, 2018 12:26 pm
lukestuckenhymer wrote:
Fri Oct 12, 2018 12:11 pm
I've been an immense fan of Vanguard not only because of low ERs, but because of their lack of LTCG distributions. However, if I was a millennial with zero saved towards my retirement and now I have the ability to get in on the ground floor with zero minimum balance and zero fees, I think Fidelity is the clear choice. Because of LTCG, taxable is another story, but for tax-advantaged investing (especially for new investors), Fidelity looks very attractive at the moment.

There is nothing "clear" about this. Only time will tell. I fully expect that the future performance difference between the respective Vanguard and Fidelity TSM products will be measured in single-digit basis points, but I am not at all "clear" on which one will be the winner. As has already been discussed ad nauseam in that past, giant thread, there are a fair number of intelligent, well-supported reasons for leaning slightly towards Vanguard winning the race. But as I already said, this outcome is anything but "clear". In the real world, it probably doesn't matter a whit. There are much bigger investing issues affecting one's future success which overwhelm this somewhat worn-out discussion topic.
I wasn't talking in terms of performance. I fully expect the two to be nearly indistinguishable. By the "clear choice" I meant from the perspective of a non-boglehead/a young person opening an IRA for the first time. The zero minimum is huge. More impactful than the zero ER to me.
I will continue to use Vanguard for both taxable and tax-advantaged, but for young friends and relatives asking where to open an IRA/what to invest in for the first time, I'll be pointing in the direction of Fidelity Zero funds.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by davidkw » Fri Oct 12, 2018 1:31 pm

You will get calls from the Fidelity reps to sell you other items.

Just think of when you get the low price for an oil change or a brake job on your car. You take in the coupon and you are told you need other things for your car.
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by nisiprius » Fri Oct 12, 2018 1:32 pm

Elysium wrote:
Fri Oct 12, 2018 1:04 pm
What about differences in index construction, optimizations, block trading strategies, tax efficiency, securities lending, licensing, and above all experience matters, doesn't it? Vanguard has many years of expertise built into passive investing strategies so much that it is their core competency as opposed to Fidelity while not totally new are less experienced and not a core focus area of their expertise. Would someone trust Fidelity to overcome all of these factors to deliver better risk adjusted returns over time even with tiny advantage in expense ratios.

Call me skeptical, as I am doubtful Fidelity index products will deliver same overall cost / benefit value compared to Vanguard over time. The key aspect here is we have to consider it holistically from all angles possible and not just tiny differences in ER.
Try a blind taste test.

These are two bond index funds, both tracking the Bloomberg Barclay's US Aggregate Bond Index until 2010, when Vanguard switched to the microscopically different Bloomberg Barclay's US Aggregate Float-Adjusted Index.

For most of their history, the expense ratio of the Fidelity fund, FBIDX, was higher than the Vanguard fund, VBMFX.

Blindfolded, judging only by taste: which is Vanguard and which is Fidelity? The two mutual funds are plotted in blue and green, the Bloomberg Barclay's US Aggregate Index is plotted in orange.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by drzzzzz » Fri Oct 12, 2018 2:00 pm

While this might not apply to most of the individuals who post here, I think the biggest benefit is for the individual who doesn't have enough saved up to meet the Vanguard minimum thresholds for their investor or admiral funds. Fidelity should get a huge benefit from this since someone who is starting out with only a few dollars saved can now join the party and if Fidelity is lucky, their funds become sticky and the client stays with them.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Angst » Fri Oct 12, 2018 2:03 pm

lukestuckenhymer wrote:
Fri Oct 12, 2018 1:21 pm
I wasn't talking in terms of performance. I fully expect the two to be nearly indistinguishable. By the "clear choice" I meant from the perspective of a non-boglehead/a young person opening an IRA for the first time. The zero minimum is huge. More impactful than the zero ER to me.
I will continue to use Vanguard for both taxable and tax-advantaged, but for young friends and relatives asking where to open an IRA/what to invest in for the first time, I'll be pointing in the direction of Fidelity Zero funds.
I agree, it's unfortunate that Vanguard generally imposes that $3,000 hurdle to get started. It's important to get started invested and to develop good investing habits. (Yes, at least there's the $500 min on the STAR fund still?)

Then again, davidkw makes some valid points below:
davidkw wrote:
Fri Oct 12, 2018 1:31 pm
You will get calls from the Fidelity reps to sell you other items.

Just think of when you get the low price for an oil change or a brake job on your car. You take in the coupon and you are told you need other things for your car.
And who are those most vulnerable to this type of pressure? Well besides the elderly, those less educated or even cognitively challenged, I'd include newbies such as:
lukestuckenhymer wrote:
Fri Oct 12, 2018 1:21 pm
young friends and relatives asking where to open an IRA/what to invest in for the first time
Just saying, it's still clear as mud to me! I do appreciate and understand your point though, and I wish Vanguard offered a better alternative. Perhaps a $100 min IRA with a required minimum auto-investment plan commitment of say $25/month?

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by stan1 » Fri Oct 12, 2018 2:13 pm

Vanguard already has an alternative to a minimum balance called a brokerage account that can be invested in ETFs. No fee with e-delivery. I realize some people here are still skeptical about ETFs and want the enforced discipline that comes with frequent trading restrictions on Vanguard mutual funds.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Doc » Fri Oct 12, 2018 3:11 pm

davidkw wrote:
Fri Oct 12, 2018 1:31 pm
You will get calls from the Fidelity reps to sell you other items.

Just think of when you get the low price for an oil change or a brake job on your car. You take in the coupon and you are told you need other things for your car.
We have had an account with Fidelity since 2002 and have never gotten a call from a Fidelity rep.

And we don't take our cars to Fidelity for an oil change - coupon or no coupon.

On the other side when I've needed signature guarantee or notraized signature the local Fidelity office is only a few miles away not half way across the country.
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by HueyLD » Fri Oct 12, 2018 3:12 pm

livesoft wrote:
Fri Oct 12, 2018 12:01 pm
I want to know more about the tax efficiency of these funds because I have to invest in a taxable account.
A very good point.

The past history of Fido index funds indicates that Fido's funds are not as tax efficient as VG's funds probably due to more active traders on Fido site.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by oldcomputerguy » Fri Oct 12, 2018 3:29 pm

Elysium wrote:
Fri Oct 12, 2018 11:45 am
3. Vanguard uses CRSP indexes and Fidelity uses Russell Indexes for some funds (not sure what all but Large Value is one)
Fidelity also uses a Russell index for their Large Growth index fund, as well as their Mid Cap and Small Cap index funds. Their Total Market fund uses a Dow Jones US Market index, and of course their S&P500 fund uses the S&P index. Fidelity advertises a U.S. Sustainability Index Fund, which uses an MSCI index (specifically the MSCI USA ESG Leaders Index, whatever that is). The newly-announced ZERO funds use an in-house index created and maintained by Fidelity.
5. Vanguard offers index funds not offered by Fidelity, such as:
Small Value Index, Small Growth Index, Dividend Appreciation Index, High Divided Yield Index, Intl Dividend Appreciation Index, Mid-cap Value Index, on an on ..
Indeed, Vanguard does have more index fund offerings, which I expect would accommodate a slice-n-dice investor better than would the Fidelity offerings. For just a three-fund approach, though, I think both are fine.
Given that, is Fidelity the best shop for a passive investor worthy enoough to be considered above Vanguard, let alone switching for an existing investor.
I have funds at both Fidelity and Vanguard, and I am happy with this approach. The funds at Vanguard are probably "better", at least on paper, to some extent or another, but the funds at both are "good enough" that I feel no need to go through the bother of moving everything from one to the other. I also like the fact that a hack or crack in one fund provider's IT infrastructure will not expose my entire holdings to burglary.
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by oldcomputerguy » Fri Oct 12, 2018 3:32 pm

HueyLD wrote:
Fri Oct 12, 2018 3:12 pm
The past history of Fido index funds indicates that Fido's funds are not as tax efficient as VG's funds probably due to more active traders on Fido site.
From what I've read, I think this also stems at least in part from the fact that Vanguard's mutual funds and their ETFs are simply different share classes of the same underlying funds, which affords their mutual funds some of the tax efficiencies attributed to ETFs.
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by HueyLD » Fri Oct 12, 2018 3:48 pm

Your point is also a good one. How did I forget that? :oops:

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by GeraniumLover » Fri Oct 12, 2018 9:22 pm

HueyLD wrote:
Fri Oct 12, 2018 3:12 pm
livesoft wrote:
Fri Oct 12, 2018 12:01 pm
I want to know more about the tax efficiency of these funds because I have to invest in a taxable account.
A very good point.

The past history of Fido index funds indicates that Fido's funds are not as tax efficient as VG's funds probably due to more active traders on Fido site.
However, the new Fidelity Zero funds likely have substantially fewer capital gains at this stage in their life that will need to get distributed and taxed...

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by stlutz » Fri Oct 12, 2018 9:56 pm

While it's not true that a Vanguard fund is always the best choice, it will never be a bad choice. Overall, they are the best investment manager around.

On the other hand, Fidelity is a better broker than Vanguard.

You can buy a Vanguard ETF anywhere. On the other hand, if you want VG mutual funds, then you should just invest at Vanguard.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by UpperNwGuy » Fri Oct 12, 2018 10:03 pm

Elysium wrote:
Fri Oct 12, 2018 11:45 am
Is Fidelity using indexes that are cheaper to licence compared to Vanguard? If so, do they really have innovation and customers best interest in mind in offering the best products or improving existing products as opposed to cheap marketing slogans based on expense ratio alone. Are they cutting cost by offering cheaper licensed products that may not perform as well to make up for the reduced ER marketing campaign.

***

This is not a pro Vanguard or anti Fidelity thread.
The opening post of this thread contradicts itself. This is clearly another let's-bash-Fidelity thread. This is getting tiresome.

Elysium's comments later in the thread confirm the anti-Fidelity bias. Why are we re-litigating this same discussion over and over and over again?

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Elysium » Fri Oct 12, 2018 11:37 pm

UpperNwGuy wrote:
Fri Oct 12, 2018 10:03 pm
Elysium wrote:
Fri Oct 12, 2018 11:45 am
Is Fidelity using indexes that are cheaper to licence compared to Vanguard? If so, do they really have innovation and customers best interest in mind in offering the best products or improving existing products as opposed to cheap marketing slogans based on expense ratio alone. Are they cutting cost by offering cheaper licensed products that may not perform as well to make up for the reduced ER marketing campaign.

***

This is not a pro Vanguard or anti Fidelity thread.
The opening post of this thread contradicts itself. This is clearly another let's-bash-Fidelity thread. This is getting tiresome.

Elysium's comments later in the thread confirm the anti-Fidelity bias. Why are we re-litigating this same discussion over and over and over again?
I do not have a bias against Fidelity. But I am skeptical, why is that a problem. I used to be skeptical about DFA back in the days, but not anymore as evidence has shown they are very efficient at what they do. I do not quite trust AQR yet. It is good to have a fair amount of skepticism until proven otherwise through strong track record that cover various aspects of an issue, not just one narrow point such as expense ratios.

Vanguard has more experience and longer history of indexing, Fidelity is new at this, we need to inspect if there is merit beyond the lower ER or is there a trap where you end up losing on overall value front. For instance, the differences in index construction is a genuine concern worth understanding. Don't you think it is worthwhile for us to understand the issues?

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by mervinj7 » Sat Oct 13, 2018 12:36 am

Elysium wrote:
Fri Oct 12, 2018 11:37 pm


Vanguard has more experience and longer history of indexing, Fidelity is new at this, we need to inspect if there is merit beyond the lower ER or is there a trap where you end up losing on overall value front.
You mentioned several times that Fidelity is "new" at indexing. Any basis for that? I own both Vanguard Total Market (started in 1992) and Fidelity Total Market (started in 1997). Obviously, their S&P 500 funds are even older (Fidelity in 1988) with Vanguard's being the first and most famous (in 1976).

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by jbranx » Sat Oct 13, 2018 1:29 am

Fidelity says it has contracted with S&P Global Index group to provide the data for both Zero funds, so I would expect both of them to look pretty much like the indices every other total market indexer provides. Geode Capital, Fido's indexing unit, has long demonstrated that it knows how to do indexing as well as any other provider. Fidelity has one advantage in charging no fee. Vanguard has one advantage in holding a patent on a fund structure that ensures its funds almost never have capital gains distributions.

The days when Gus Sauter at Vanguard could get an edge on other index providers by clever use of futures, etc., are over as everyone's learning curve has improved and competition has made good execution necessary. Thus, at a high level, an investor's returns in any of these funds is apt to depend far more on their own behavior--how disciplined they are in regular investing, for example--than any inferior or superior execution by an index fund provider.

Personally, I am using both Zero funds in lieu of the Vanguard Total World etf, saving myself the 11 basis points and the trading costs. In my non-taxable accounts I have switched out of FFNOX, Fido's Four in One Index, and using the two Zero funds, saving a few basis points and picking up emerging markets without having to add another fund. I have plenty of etf choices and bond index funds at Fido to choose for the bond allocation,including free trading at treasury auctions and excellent pricing and execution on muni bond trades.

I have been a Fido client since '83 and left Vanguard in the early nineties because of really poor experience with their customer service. However, my FIL was with their flagship service that my wife handled for him, and the assigned Vanguard agent was exceptional. There's not enough difference between Fido and Vanguard now to split many hairs over, in my view. I've always been self-advised with Fido and in 35 years I have never had an unsolicited call or product push from them or ever experienced even once poor customer service.

UpperNwGuy
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by UpperNwGuy » Sat Oct 13, 2018 5:17 am

Elysium wrote:
Fri Oct 12, 2018 11:37 pm
I do not have a bias against Fidelity. But I am skeptical, why is that a problem. I used to be skeptical about DFA back in the days, but not anymore as evidence has shown they are very efficient at what they do. I do not quite trust AQR yet. It is good to have a fair amount of skepticism until proven otherwise through strong track record that cover various aspects of an issue, not just one narrow point such as expense ratios.
It's not a problem for you to be skeptical of Fidelity. It's your money, and you can invest it as you see fit. The problem is that you seem intent on convincing the rest of us that we, too, should be skeptical of Fidelity. Bashing Fidelity gets a bit annoying when no new information is being presented, especially after the hundreds of posts that discussed this issue ad nauseam during the month of August. I think Fidelity was our most popular topic for the month of August.

rkhusky
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by rkhusky » Sat Oct 13, 2018 6:57 am

Angst wrote:
Fri Oct 12, 2018 2:03 pm
I agree, it's unfortunate that Vanguard generally imposes that $3,000 hurdle to get started. It's important to get started invested and to develop good investing habits. (Yes, at least there's the $500 min on the STAR fund still?)
The Vanguard Target Retirement funds start at a $1000 and that is where I would point all new investors. And, if they don't have $1000, they should start with a savings account before diving into investing. You should learn to save before trying to invest in the stock market.

blevine
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by blevine » Sat Oct 13, 2018 7:17 am

The premise of this thread, to ignore customer service and just compare index funds, is just impossible for me to do. When two products are so similar that one must work to differentiate them, then all you have left is cost (fees, maybe taxes) and service to make your decision.

The larger the fund and more shareholders, the less likely there will be taxable cap gains (can pair buy/sell flows more easily with large number of shareholders, limiting need to sell securities to fund share sales). So that is a fund by fund decision, not fund complex decision. Vanguard has had index funds a long time, with many shareholders, but when either firm rolls out a new fund, the initial investors bear more costs, and possibly more taxes in the short run. If a niche index, that may never improve. If you really want to optimize a taxable account, you can open one acct at each firm! Makes less sense for an ira, where taxes dont matter, and moving funds back and forth is more of a hassle.

Service is the subject of many threads. I am sure the service is great at Edward Jones :-) Most here wont pay more for service, and at big firms like Fidelity and Vanguard, the service quality will vary with each interaction. My goal is to not need to call them at all, so I value website capability. Hate calling to ask for offsite services at any vendor.

3funder
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by 3funder » Sat Oct 13, 2018 7:21 am

They're both fine.

Elysium
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Elysium » Sat Oct 13, 2018 7:38 am

UpperNwGuy wrote:
Sat Oct 13, 2018 5:17 am
Elysium wrote:
Fri Oct 12, 2018 11:37 pm
I do not have a bias against Fidelity. But I am skeptical, why is that a problem. I used to be skeptical about DFA back in the days, but not anymore as evidence has shown they are very efficient at what they do. I do not quite trust AQR yet. It is good to have a fair amount of skepticism until proven otherwise through strong track record that cover various aspects of an issue, not just one narrow point such as expense ratios.
It's not a problem for you to be skeptical of Fidelity. It's your money, and you can invest it as you see fit. The problem is that you seem intent on convincing the rest of us that we, too, should be skeptical of Fidelity. Bashing Fidelity gets a bit annoying when no new information is being presented, especially after the hundreds of posts that discussed this issue ad nauseam during the month of August. I think Fidelity was our most popular topic for the month of August.
I am not trying to convince anyone of anything, we are free to come to our own conclusions. If you do not like a specific topic, then we can move on from reading or responding. We cannot come up with topics that pleases everyone. If we can stay focused on the merits on the topics rather than attacking the intent or tone of the thread we can have a more productive discussion.

I said in the opening itself that Total stock indexes and S&P 500 indexes are all the same almost everywhere, however when it comes to factor investing, index construction matters a lot, and so does execution.

This discussion is about the merits of indexing based on all aspects of it, not just expense ratios. I have not read a thread concentrating on the differences in consitruction of indexes used by Vanguard vs Fidelity. for instance, what are the pros / cons of using CRSP index vs Russell indexes. I learned soemthing useful from another poster who knew the issues. But there could be more to it. That is the main premise of this thread. How does the index products comparae overall when considering index construction, variety of offerings, factor investing, and expertise in execution.

Elysium
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Elysium » Sat Oct 13, 2018 7:45 am

So far I can summarize the four major themes emerge:

1. Fidelity and Vanguard both offer low cost index products and both will do fine if you are a total market investor
2. Vanguard has variety in index products offerings, and if you are a slide & dicer or wish to use some of the factors, then Vanguard is better
3. Index construction matters, some of the issues related to poor construction of some of the ndexers are going away, but we need to learn more
4. Platform may not matter much since ETFs can be purchased almost anywhere, if you are open to using them.

mervinj7
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by mervinj7 » Sat Oct 13, 2018 10:48 am

Elysium wrote:
Sat Oct 13, 2018 7:45 am
So far I can summarize the four major themes emerge:

1. Fidelity and Vanguard both offer low cost index products and both will do fine if you are a total market investor
2. Vanguard has variety in index products offerings, and if you are a slide & dicer or wish to use some of the factors, then Vanguard is better
3. Index construction matters, some of the issues related to poor construction of some of the ndexers are going away, but we need to learn more
4. Platform may not matter much since ETFs can be purchased almost anywhere, if you are open to using them.
You missed the most important recent change. Fidelity simplified their index fund structure. There is only one share class per index fund with the lowest ER chosen and no minimum investment. IMHO, that's far more important than the ZERO funds.
For #2, many slice and dicers at Fidelity use the commission-free iShares ETFs to build their portfolios. That's what I used to do until Taylor convinced me of the benefits of the Three Fund Portfolio.

retiringwhen
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by retiringwhen » Sat Oct 13, 2018 11:08 am

My biggest hangup on the Fidelity Zero Funds and their stable of Index funds is the requirement to be fixed in their universe (aka Brokerage). Their business model is quite simple.

Entice with a imperceptibly better product and top-notch Madison Avenue psychology, then get you to start buying the high margin stuff....

I just ran the numbers on their settlement account based on another thread, not pretty...
...
Okay, so this thread made me look at Fidelity to see what their Federal Money Market equivalent looks like.

I turns out they were able to make the same case about their Fidelity Government Money Market (SPAXX). It does not implement the gates/fees rules either, but their fees are still 3.5 times greater than Vanguard.

The Expense Ratio is .42% and their current yield is 1.71% vs. Vanguard Federal Money Market (VMFXX) of 2.03% the ER different is significant and the yields show it. Additionally, their summary has the following quote
Fidelity is voluntarily reimbursing a portion of the fund's expenses. If Fidelity had not, the returns would have been lower.
So, Vanguards advantage is not a different implementation of the rules. Just that they do it for at least 75% LESS than Fidelity..... Want to know where Fidelity gets its revenue to subsidize their Zero Funds? Look no further.
With Vanguard, I am ensured that the worst difference between a Vanguard Fund and someone else is about as much different as 100mm vs. 101mm.

If Vanguard every gets stupid and loses the fee race overall or their customer service truly becomes unbearable, I can just convert my Mutual funds to ETFs and move to a new brokerage without a taxable event (YMMV for IRAs). Try that with the Fidelity Zero funds, they have you by the short hair, you won't be able to even move them to most brokerages I bet.

Elysium
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Elysium » Sat Oct 13, 2018 5:41 pm

mervinj7 wrote:
Sat Oct 13, 2018 10:48 am
Elysium wrote:
Sat Oct 13, 2018 7:45 am
So far I can summarize the four major themes emerge:

1. Fidelity and Vanguard both offer low cost index products and both will do fine if you are a total market investor
2. Vanguard has variety in index products offerings, and if you are a slide & dicer or wish to use some of the factors, then Vanguard is better
3. Index construction matters, some of the issues related to poor construction of some of the ndexers are going away, but we need to learn more
4. Platform may not matter much since ETFs can be purchased almost anywhere, if you are open to using them.
You missed the most important recent change. Fidelity simplified their index fund structure. There is only one share class per index fund with the lowest ER chosen and no minimum investment. IMHO, that's far more important than the ZERO funds.
For #2, many slice and dicers at Fidelity use the commission-free iShares ETFs to build their portfolios. That's what I used to do until Taylor convinced me of the benefits of the Three Fund Portfolio.
I guess we are getting somewhere with regard to an approach that may be implementable. Let's see if this approach works:

If using Fidelity:
1. Use Fidelity lower cost Total Market funds and Bond index funds where needed
2. If adding factors and / or other slices, use ETFs from a variety of providers, including even Vanguard by paying a $5 commission
3. Try to minimize the effect of trading costs by buying in bulk and making only 1-2 transactions per year

If using Vanguard:
1. Continue holding Vanguard admiral class funds where possible (not available for Solo 401(k))
2. Compliment with ETFs from other providers where needed through the brokerage platform (now part of the account structure)
3. No trading costs at Vanguard for ETFs??

Dead Man Walking
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Dead Man Walking » Sun Oct 14, 2018 2:36 am

I've read all of the Vanguard vs Fidelity threads. I've used the websites of both and don't understand the preferences claimed by proponents of either. They are different, but neither is that difficult to navigate. Preference may be based on experience with one over the other. I'm fascinated by the those who claim that Fidelity has better telephone representatives than Vanguard. The internet has been available for a couple of decades. Who has found a need to talk to a representative from either? I have had accounts at both for about 40 years. Since the advent of the internet, I may have called both about a half dozen times total! The only negative experience that I've had was with a Fidelity representative who didn't know what Fidelity's policy was regarding transfers - it was an esoteric question that a telephone rep may not be expected to know.

I've transferred most of my assets to Vanguard because I anticipate consolidating most of my portfolio into a Lifestrategy fund sometime in the future. I prefer Vanguard's Lifestrategy funds over their counterparts from Fidelity. However, if I were a beginning investor, I would probably become a Fidelity investor due to the zero minimum in addition to the zero expense ratios. If I felt the need to chat with a rep on the telephone, I'd probably be naive enough to be duped by an Edward Jones, Raymond James, or other advisor. Of course, I am assuming that a serious beginner would be smarter than his smart phone!

DMW

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by NYCwriter » Sun Oct 14, 2018 1:22 pm

I've had my core taxable/Roth at Vanguard since I opened a Roth years ago, and individual equities at Fidelity (moved over from TD). I suppose if I was starting over again I'd keep everything at Fidelity. However,

Vanguard was always the low-cost leader. They may be lagging in the competition wars but their business model is low-cost. I have more confidence in V maintaining this business model :)

In addition to TSM, I have small-cap, muni fund, Int'l and don't have to pay transaction fees. I've already saved money over the years. In Aug I opened a non-VG short term floating treasury etf, and there are no fees.

Vanguard is full of these little reminders that prudent, long-term investing works. Everything from that "how we calculate performance" to the annoying hold they place on mutual funds. I recently reduced VDIGX (Div growth) in my Roth, which I've had forever but can't bring myself to close since it's closed. Can't touch it again for a few weeks. I have never traded in and out of TSM admiral fund. I just DCA into it. Yeah, they push their World Bond or whatever, but they're not encouraging you to read the news or screen for lily-gilding products.

When I first set up a Roth years ago, customer service was very helpful. They didn't just send me to a page (there is none), I got a long helpful explanations that they provide to new customers. CS has lagged a bit with the influx. Fidelity has good service too, but it feels more commercial.

NYCwriter
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by NYCwriter » Sun Oct 14, 2018 1:37 pm

Elysium wrote:
Sat Oct 13, 2018 5:41 pm
mervinj7 wrote:
Sat Oct 13, 2018 10:48 am
Elysium wrote:
Sat Oct 13, 2018 7:45 am
So far I can summarize the four major themes emerge:

1. Fidelity and Vanguard both offer low cost index products and both will do fine if you are a total market investor
2. Vanguard has variety in index products offerings, and if you are a slide & dicer or wish to use some of the factors, then Vanguard is better
3. Index construction matters, some of the issues related to poor construction of some of the ndexers are going away, but we need to learn more
4. Platform may not matter much since ETFs can be purchased almost anywhere, if you are open to using them.
You missed the most important recent change. Fidelity simplified their index fund structure. There is only one share class per index fund with the lowest ER chosen and no minimum investment. IMHO, that's far more important than the ZERO funds.
For #2, many slice and dicers at Fidelity use the commission-free iShares ETFs to build their portfolios. That's what I used to do until Taylor convinced me of the benefits of the Three Fund Portfolio.
I guess we are getting somewhere with regard to an approach that may be implementable. Let's see if this approach works:

If using Fidelity:
1. Use Fidelity lower cost Total Market funds and Bond index funds where needed
2. If adding factors and / or other slices, use ETFs from a variety of providers, including even Vanguard by paying a $5 commission
3. Try to minimize the effect of trading costs by buying in bulk and making only 1-2 transactions per year

If using Vanguard:
1. Continue holding Vanguard admiral class funds where possible (not available for Solo 401(k))
2. Compliment with ETFs from other providers where needed through the brokerage platform (now part of the account structure)
3. No trading costs at Vanguard for ETFs??
It's true that Fidelity has arrangements with iShares. Fidelity was ideal for my individual holdings, since they gave me 2 years free commissions, which allowed me to gradually reduce or close and move that over to my core VG funds. I think Vanguard was smart. They didn't slash ers, but most customers aren't inclined to move large holdings. Removing fees for ETFs means existing customers can choose something they want.

drk
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by drk » Sun Oct 14, 2018 1:41 pm

No. They're replacement products, virtually indistinguishable from one another.

lukestuckenhymer
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by lukestuckenhymer » Sun Oct 14, 2018 1:55 pm

rkhusky wrote:
Sat Oct 13, 2018 6:57 am
Angst wrote:
Fri Oct 12, 2018 2:03 pm
I agree, it's unfortunate that Vanguard generally imposes that $3,000 hurdle to get started. It's important to get started invested and to develop good investing habits. (Yes, at least there's the $500 min on the STAR fund still?)
The Vanguard Target Retirement funds start at a $1000 and that is where I would point all new investors. And, if they don't have $1000, they should start with a savings account before diving into investing. You should learn to save before trying to invest in the stock market.
I would too, except for that bond component. Even Target 2065 (VLXVX) has 10% bonds. Recommending any allocation of bonds to a 20-something with 35-40+ years to retirement is a disservice.

feh
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by feh » Sun Oct 14, 2018 4:49 pm

davidkw wrote:
Fri Oct 12, 2018 1:31 pm
You will get calls from the Fidelity reps to sell you other items.
Been a Fido customer for 5+ years and have never received such a call. Have met with my Fido rep twice in those 5 years, and never received a sales pitch.

rkhusky
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by rkhusky » Mon Oct 15, 2018 6:58 am

lukestuckenhymer wrote:
Sun Oct 14, 2018 1:55 pm
I would too, except for that bond component. Even Target 2065 (VLXVX) has 10% bonds. Recommending any allocation of bonds to a 20-something with 35-40+ years to retirement is a disservice.
I don't agree. Everyone should have some bonds for a well-rounded portfolio. And a 10% allocation bonds is not going to hurt much if the market soars (and it won't help much if the market crashes), but it smooths out the stock market noise a bit and having bonds is a good investing habit to get into.

Elysium
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by Elysium » Mon Oct 15, 2018 7:27 am

rkhusky wrote:
Mon Oct 15, 2018 6:58 am
lukestuckenhymer wrote:
Sun Oct 14, 2018 1:55 pm
I would too, except for that bond component. Even Target 2065 (VLXVX) has 10% bonds. Recommending any allocation of bonds to a 20-something with 35-40+ years to retirement is a disservice.
I don't agree. Everyone should have some bonds for a well-rounded portfolio. And a 10% allocation bonds is not going to hurt much if the market soars (and it won't help much if the market crashes), but it smooths out the stock market noise a bit and having bonds is a good investing habit to get into.
+1

A 20+ something person can and should have some fixed income investments. Let it be in the form of bond allocation in a TR fund, CD, Savings Account, I-Bonds, or anything else. Everyone needs cash equivalents.

I would argue it is a disservice not to encourage young people to have fixed income for a number of reasons, not the least of which are to learn about risks in investing before committing too much. Other important reasons include building up fixed income for down payments on a car, house, or just about anything else. There is no need to see this as separate allocation initially. Once you are comfortable about your risk tolerance level you can set the right allocation. Besides, what is the difference between a 90/10 and a 100 equity allocation? 0.1%

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by ruralavalon » Mon Oct 15, 2018 10:42 am

In my opinion the most important advantage to Fidelity (and Schwab as well) is the zero initial minimum investment for traditional mutual funds. This will be very important to the young or new investor, or any investor with a moderate income.

A $3k initial minimum investment for almost all funds at Vanguard is a significant hurdle for the median U.S. household or individual.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by rkhusky » Mon Oct 15, 2018 7:32 pm

ruralavalon wrote:
Mon Oct 15, 2018 10:42 am

A $3k initial minimum investment for almost all funds at Vanguard is a significant hurdle for the median U.S. household or individual.
As noted above, the TR funds have a $1000 minimum, which is what beginners should start with anyway.

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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by NYCwriter » Mon Oct 15, 2018 11:11 pm

ruralavalon wrote:
Mon Oct 15, 2018 10:42 am
In my opinion the most important advantage to Fidelity (and Schwab as well) is the zero initial minimum investment for traditional mutual funds. This will be very important to the young or new investor, or any investor with a moderate income.

A $3k initial minimum investment for almost all funds at Vanguard is a significant hurdle for the median U.S. household or individual.
True, but wouldn't the ETF share classes be cheaper and without the minimum?

viz
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by viz » Mon Oct 15, 2018 11:24 pm

NYCwriter wrote:
Mon Oct 15, 2018 11:11 pm
ruralavalon wrote:
Mon Oct 15, 2018 10:42 am
In my opinion the most important advantage to Fidelity (and Schwab as well) is the zero initial minimum investment for traditional mutual funds. This will be very important to the young or new investor, or any investor with a moderate income.

A $3k initial minimum investment for almost all funds at Vanguard is a significant hurdle for the median U.S. household or individual.
True, but wouldn't the ETF share classes be cheaper and without the minimum?
True but you need $3 to start a 3 fund portfolio at fidelity and you won't find any ETF under 10$. Also with MF you can invest every last cent but not with ETF unless you use something like M1 or betterment. For smaller account even a few dollars can be a chunk of the account.

viz
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Re: Does Fidelity offer the best index products for a passive investor compared to Vanguard

Post by viz » Mon Oct 15, 2018 11:26 pm

rkhusky wrote:
Mon Oct 15, 2018 7:32 pm
ruralavalon wrote:
Mon Oct 15, 2018 10:42 am

A $3k initial minimum investment for almost all funds at Vanguard is a significant hurdle for the median U.S. household or individual.
As noted above, the TR funds have a $1000 minimum, which is what beginners should start with anyway.
Why wait till 1k? If I only have 500$ to put in my Roth IRA at age of 20, should I wait another year and not start investing?

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