"Don't Obsess About Expense Ratios"

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

Post by EddyB » Thu Aug 09, 2018 4:43 pm

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

I don't need customer service. I do everything online, and it's very easy to use Vanguard to do what I do. On the rare occasion that I've needed to contact Vanguard's staff for some reason, they've been fine.
That is my experience as well. I have never called VG or Fidelity in over 20 years of account ownership. I once walked into a Fidelity Office. Don’t exactly recall why. I suspect they both will generally offer acceptable service if I need it.
While I can do most everything I need to do on either the Fidelity, Vanguard or Schwab websites, my customer service dissatisfaction with Vanguard comes from multiple instances of cost basis errors (which I identified and they were then slow to resolve) and multiple instances of mishandling early "mega backdoor Roth" transactions (which they really struggled with, but now have down). I was paying attention, but had I not been, the tax consequences of the errors would have been substantial. Accuracy is part of customer service, too.

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Re: "Don't Obsess About Expense Ratios"

Post by Nate79 » Thu Aug 09, 2018 5:07 pm

willthrill81 wrote:
Thu Aug 09, 2018 4:37 pm
Nate79 wrote:
Thu Aug 09, 2018 4:29 pm
As mentioned in the other thread on this topic this article was quite bad. Seems very quickly thrown together to try and support Vanguard. It's a shame and should be retracted.
Is it factually incorrect? Have Vanguard's funds not outperformed their competitors, despite 1-3 basis point higher ERs?
1. the TSM funds from each provider do not track the same index. They are not meant to outperform or not.
2. The funds did not have this ER during the time compared.
3. using after tax results from M* is laughable

This is intellectual dishonesty.

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

Post by goalie » Thu Aug 09, 2018 5:17 pm

To me it's simple. Invest with a company that has always kept their fees as low as they can & bonus their employees for helping to lower these fees. ORRRR invest with a company that lowers their fees to try to steal another company's loyal and not-so-loyal clients, in the hopes that these clients may put some $$$ into a higher cost fund.....Saint Jack put it best, he said something about serving two masters. Chip

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

Post by Nate79 » Thu Aug 09, 2018 5:32 pm

goalie wrote:
Thu Aug 09, 2018 5:17 pm
To me it's simple. Invest with a company that has always kept their fees as low as they can & bonus their employees for helping to lower these fees. ORRRR invest with a company that lowers their fees to try to steal another company's loyal and not-so-loyal clients, in the hopes that these clients may put some $$$ into a higher cost fund.....Saint Jack put it best, he said something about serving two masters. Chip
Schwab and Fidelity have been a leader in reducing the ER of their funds and have had lower expenses than Vanguard for some time now. Perhaps Vanguard can catch up to these leaders.

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

Post by sunspotzsz » Thu Aug 09, 2018 5:34 pm

Lol, now all of sudden, expense ratio is not important!

such a hypocrite!
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David Jay
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Re: "Don't Obsess About Expense Ratios"

Post by David Jay » Thu Aug 09, 2018 6:36 pm

Nate79 wrote:
Thu Aug 09, 2018 5:32 pm
goalie wrote:
Thu Aug 09, 2018 5:17 pm
To me it's simple. Invest with a company that has always kept their fees as low as they can & bonus their employees for helping to lower these fees. ORRRR invest with a company that lowers their fees to try to steal another company's loyal and not-so-loyal clients, in the hopes that these clients may put some $$$ into a higher cost fund.....Saint Jack put it best, he said something about serving two masters. Chip
Schwab and Fidelity have been a leader in reducing the ER of their funds and have had lower expenses than Vanguard for some time now. Perhaps Vanguard can catch up to these leaders.
If Fidelity is such a leader, why do they even have the Fidelity Freedom Fund family? And why do they make it difficult to find the Fidelity Freedom Index Funds which are some 50 basis points cheaper?
Last edited by David Jay on Thu Aug 09, 2018 6:40 pm, edited 1 time in total.
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willthrill81
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Thu Aug 09, 2018 6:37 pm

Nate79 wrote:
Thu Aug 09, 2018 5:07 pm
willthrill81 wrote:
Thu Aug 09, 2018 4:37 pm
Nate79 wrote:
Thu Aug 09, 2018 4:29 pm
As mentioned in the other thread on this topic this article was quite bad. Seems very quickly thrown together to try and support Vanguard. It's a shame and should be retracted.
Is it factually incorrect? Have Vanguard's funds not outperformed their competitors, despite 1-3 basis point higher ERs?
1. the TSM funds from each provider do not track the same index. They are not meant to outperform or not.
I don't care whether they are 'meant' to outperform. If one does outperform on an after-fee basis, that's the one I want to be in.
Nate79 wrote:
Thu Aug 09, 2018 5:07 pm
2. The funds did not have this ER during the time compared.
True, but a drop of 1-3 basis points to zero hardly swings the pendulum firmly into Fidelity's favor.
Nate79 wrote:
Thu Aug 09, 2018 5:07 pm
3. using after tax results from M* is laughable
Why? Is Morningstar inaccurate? That would be quite a claim. Vanguard's returns were higher both pre- and post-tax.
“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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willthrill81
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Thu Aug 09, 2018 6:38 pm

sunspotzsz wrote:
Thu Aug 09, 2018 5:34 pm
Lol, now all of sudden, expense ratio is not important!

such a hypocrite!
Who said that ERs aren't important? There's a big difference between saying that ERs aren't important and saying that you should do whatever you must to save every penny you possibly can.
“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

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

Post by Nate79 » Thu Aug 09, 2018 6:40 pm

David Jay wrote:
Thu Aug 09, 2018 6:36 pm
Nate79 wrote:
Thu Aug 09, 2018 5:32 pm
goalie wrote:
Thu Aug 09, 2018 5:17 pm
To me it's simple. Invest with a company that has always kept their fees as low as they can & bonus their employees for helping to lower these fees. ORRRR invest with a company that lowers their fees to try to steal another company's loyal and not-so-loyal clients, in the hopes that these clients may put some $$$ into a higher cost fund.....Saint Jack put it best, he said something about serving two masters. Chip
Schwab and Fidelity have been a leader in reducing the ER of their funds and have had lower expenses than Vanguard for some time now. Perhaps Vanguard can catch up to these leaders.
If Fidelity is such a leader, why do they have Fidelity Freedom Fund family? And why do they make it difficult to find the Fidelity Freedom Index Funds which are some 50 basis points cheaper?
Fidelity index funds, first search in Google. Zero effort.

https://www.fidelity.com/mutual-funds/i ... ndex-funds

Shows across the board lower fees than Vanguard.

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David Jay
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Re: "Don't Obsess About Expense Ratios"

Post by David Jay » Thu Aug 09, 2018 6:47 pm

Nate79 wrote:
Thu Aug 09, 2018 6:40 pm
David Jay wrote:
Thu Aug 09, 2018 6:36 pm
Nate79 wrote:
Thu Aug 09, 2018 5:32 pm
goalie wrote:
Thu Aug 09, 2018 5:17 pm
To me it's simple. Invest with a company that has always kept their fees as low as they can & bonus their employees for helping to lower these fees. ORRRR invest with a company that lowers their fees to try to steal another company's loyal and not-so-loyal clients, in the hopes that these clients may put some $$$ into a higher cost fund.....Saint Jack put it best, he said something about serving two masters. Chip
Schwab and Fidelity have been a leader in reducing the ER of their funds and have had lower expenses than Vanguard for some time now. Perhaps Vanguard can catch up to these leaders.
If Fidelity is such a leader, why do they have Fidelity Freedom Fund family? And why do they make it difficult to find the Fidelity Freedom Index Funds which are some 50 basis points cheaper?
Fidelity index funds, first search in Google. Zero effort.

https://www.fidelity.com/mutual-funds/i ... ndex-funds

Shows across the board lower fees than Vanguard.
Perhaps I did not make myself clear. There is no mention of the Fidelity Freedom Index Funds on the page linked above.

[edit] Or how about this, using Fidelity’s context-sensitive recommendations:
1. Go to Fidelity.com
2. In the search box in the upper right, type in: “freedom index” (no carriage return, this is the context sensitive suggestions)
3. See a list of recommended links. Freedom 2030, Freedom 2020, Freedom 2030, etc. No Freedom Index Funds listed. NOT. ONE.
Last edited by David Jay on Thu Aug 09, 2018 7:14 pm, edited 4 times in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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

Post by Nate79 » Thu Aug 09, 2018 6:54 pm

David Jay wrote:
Thu Aug 09, 2018 6:47 pm
Nate79 wrote:
Thu Aug 09, 2018 6:40 pm
David Jay wrote:
Thu Aug 09, 2018 6:36 pm
Nate79 wrote:
Thu Aug 09, 2018 5:32 pm
goalie wrote:
Thu Aug 09, 2018 5:17 pm
To me it's simple. Invest with a company that has always kept their fees as low as they can & bonus their employees for helping to lower these fees. ORRRR invest with a company that lowers their fees to try to steal another company's loyal and not-so-loyal clients, in the hopes that these clients may put some $$$ into a higher cost fund.....Saint Jack put it best, he said something about serving two masters. Chip
Schwab and Fidelity have been a leader in reducing the ER of their funds and have had lower expenses than Vanguard for some time now. Perhaps Vanguard can catch up to these leaders.
If Fidelity is such a leader, why do they have Fidelity Freedom Fund family? And why do they make it difficult to find the Fidelity Freedom Index Funds which are some 50 basis points cheaper?
Fidelity index funds, first search in Google. Zero effort.

https://www.fidelity.com/mutual-funds/i ... ndex-funds

Shows across the board lower fees than Vanguard.
Perhaps I did not make myself clear. There is no mention of the Fidelity Freedom Index Funds on the page linked above.
Ah. Ok. Under mutual fund research, index funds and fidelity family.

https://www.fidelity.com/fund-screener/ ... =N&idxFd=Y

Clearly in the list.

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

Post by fortyofforty » Thu Aug 09, 2018 7:18 pm

As there are still some Vanguard funds with expense ratios higher than I'd like, I do like the idea of competition potentially forcing Vanguard to lower its expense ratios. Lower is better, as long as the customer service doesn't suffer too much.
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triceratop
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Re: "Don't Obsess About Expense Ratios"

Post by triceratop » Thu Aug 09, 2018 7:23 pm

fortyofforty wrote:
Thu Aug 09, 2018 7:18 pm
As there are still some Vanguard funds with expense ratios higher than I'd like, I do like the idea of competition potentially forcing Vanguard to lower its expense ratios. Lower is better, as long as the customer service doesn't suffer too much.
That’s not the demonstrated history of how Vanguard has reduced expense ratios. It’s more like, more assets are scooped up and overall costs grow sublinearly with AUM. If Vanguard is honest about running things at-cost, this competition can only hurt their efforts to drive costs down. *If*
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fortyofforty
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Re: "Don't Obsess About Expense Ratios"

Post by fortyofforty » Thu Aug 09, 2018 8:05 pm

triceratop wrote:
Thu Aug 09, 2018 7:23 pm
fortyofforty wrote:
Thu Aug 09, 2018 7:18 pm
As there are still some Vanguard funds with expense ratios higher than I'd like, I do like the idea of competition potentially forcing Vanguard to lower its expense ratios. Lower is better, as long as the customer service doesn't suffer too much.
That’s not the demonstrated history of how Vanguard has reduced expense ratios. It’s more like, more assets are scooped up and overall costs grow sublinearly with AUM. If Vanguard is honest about running things at-cost, this competition can only hurt their efforts to drive costs down. *If*
That's a big "if". I've seen the campus.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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

Post by Murgatroyd » Thu Aug 09, 2018 8:29 pm

Really enjoying this banter.
Nothing like good ol’ fashioned competition!
:beer

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

Post by passiveTiger » Thu Aug 09, 2018 8:48 pm

donaldfair71 wrote:
Wed Aug 08, 2018 12:00 pm
If my Vanguard fund at .04 was good enough to keep in lieu of a Fidelity fund at 0.015, why would I jump at 0? I wouldn't move money from one fund company to the next one go from .17 to .13.
If negative tax consequences did not exist, would you move money from one fund company to the next one to go from 0.14% to 0.015% or 0.00%?

That would be a choice for those in Vanguard's VTSMX (0.14%). They can jump to FSTMX (0.015%) or FZROX (0.00%). Their balances in VTSMX should be at least $3,000 and no more than $9,999.99.

I have already posted elsewhere that VTSMX's ER is excessive (viewtopic.php?f=10&t=255356&p=4058229#p4058229).

I cannot see any argument why someone holding VTSMX (or probably any other Vanguard Investor Shares class with an equivalent lower cost option elsewhere) in an IRA should not immediately move it to Schwab or Fidelity or whoever else is significantly lower, although it is likely someone here will make one up.

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Re: "Don't Obsess About Expense Ratios"

Post by ParamedicProf » Thu Aug 09, 2018 9:14 pm

Murgatroyd wrote:
Thu Aug 09, 2018 8:29 pm
Really enjoying this banter.
Nothing like good ol’ fashioned competition!
:beer
I have never forgotten what my sons taught me about internet boards. "Even if you win on an internet board, you are still a loser." I thought that was classic. :mrgreen:

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

Post by passiveTiger » Thu Aug 09, 2018 9:22 pm

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

To get total market, you'd need to combine the free funds with a small cap fund, which would have a somewhat higher expense ratio, especially if you want small cap value. I think if you do everything through fidelity, you might not end up with a weighted average expense ratio (for free fund + small cap fund) that's not much lower than their total market funds (which might include some small cap).
The Fidelity ZERO (that is their CAPS, not mine) Total Market Index Fund (FZROX) with the 0.00% ER states this at https://fundresearch.fidelity.com/mutua ... /31635T708:

"Fidelity U.S. Total Investable Market Index, which is a float-adjusted market capitalization-weighted index designed to reflect the performance of the U.S. equity market, including large-, mid- and small-capitalization stocks"

but it currently does not show a count of holdings. I would want to see that count and compare it to Fidelity's FSTMX and and Vanguard's VTSMX.

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

Post by passiveTiger » Thu Aug 09, 2018 9:50 pm

davidsorensen32 wrote:
Tue Aug 07, 2018 12:14 am
Bottom line: STOP investing in vanguard going forward. Instead use the Fido funds. For those deep in accumulation phase this is god sent opportunity that you should grab with both hands. For mid age folks like me who cough up multiple thousands of dollars in fees to vanguard every year for our existing positions we’re out of luck. Trapped between having to pay six figures in fees to vanguard for the remainder of our investment lives or having to pay six figures in LTCG to Uncle Sam. Pick your poison.
I am incredibly excited for young and lower income investors. They do not have save up $3,000 or $1,000 or even $100 to access the low ER index funds or the two zero ER index funds at Fidelity.

Dr. Dahle's article does not argue why anyone who can only afford the Investor Shares class would ever choose the Investor Shares class at this point, but that is admittedly not a concern for his blog's audience. People in the VTSMX Investor Shares class of Vanguard Total Stock Market Index Fund are paying a very high price relative to the other share classes in the fund (viewtopic.php?f=10&t=255356&p=4058229#p4058229).

My taxable at Vanguard has to stay put at Vanguard. My tax-advantaged does not, and new money will not.

I am still a little suspicious of the FZROX (0.00% ER) fund until we get more simple basic information (like the number of holdings), but I am not suspicious of the FSTMX (0.015% ER) fund.

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

Post by WanderingDoc » Thu Aug 09, 2018 9:59 pm

passiveTiger wrote:
Thu Aug 09, 2018 9:50 pm
davidsorensen32 wrote:
Tue Aug 07, 2018 12:14 am
Bottom line: STOP investing in vanguard going forward. Instead use the Fido funds. For those deep in accumulation phase this is god sent opportunity that you should grab with both hands. For mid age folks like me who cough up multiple thousands of dollars in fees to vanguard every year for our existing positions we’re out of luck. Trapped between having to pay six figures in fees to vanguard for the remainder of our investment lives or having to pay six figures in LTCG to Uncle Sam. Pick your poison.
I am incredibly excited for young and lower income investors. They do not have save up $3,000 or $1,000 or even $100 to access the low ER index funds or the two zero ER index funds at Fidelity.

Dr. Dahle's article does not argue why anyone who can only afford the Investor Shares class would ever choose the Investor Shares class at this point, but that is admittedly not a concern for his blog's audience. People in the VTSMX Investor Shares class of Vanguard Total Stock Market Index Fund are paying a very high price relative to the other share classes in the fund (viewtopic.php?f=10&t=255356&p=4058229#p4058229).

My taxable at Vanguard has to stay put at Vanguard. My tax-advantaged does not, and new money will not.

I am still a little suspicious of the FZROX (0.00% ER) fund until we get more simple basic information (like the number of holdings), but I am not suspicious of the FSTMX (0.015% ER) fund.
You're on point, the blog's audience prefers a delicate sherry and saffron, as well as a round of golf and spot of tea on a Tuesday afternoon :wink:
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willthrill81
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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Thu Aug 09, 2018 10:18 pm

passiveTiger wrote:
Thu Aug 09, 2018 8:48 pm
donaldfair71 wrote:
Wed Aug 08, 2018 12:00 pm
If my Vanguard fund at .04 was good enough to keep in lieu of a Fidelity fund at 0.015, why would I jump at 0? I wouldn't move money from one fund company to the next one go from .17 to .13.
If negative tax consequences did not exist, would you move money from one fund company to the next one to go from 0.14% to 0.015% or 0.00%?

That would be a choice for those in Vanguard's VTSMX (0.14%). They can jump to FSTMX (0.015%) or FZROX (0.00%). Their balances in VTSMX should be at least $3,000 and no more than $9,999.99.

I have already posted elsewhere that VTSMX's ER is excessive (viewtopic.php?f=10&t=255356&p=4058229#p4058229).

I cannot see any argument why someone holding VTSMX (or probably any other Vanguard Investor Shares class with an equivalent lower cost option elsewhere) in an IRA should not immediately move it to Schwab or Fidelity or whoever else is significantly lower, although it is likely someone here will make one up.
Don't forget that not all 'total stock market' funds are tracking the same index.
“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

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

Post by bost » Thu Aug 09, 2018 10:53 pm

Interesting note in the prospectus:

"The fund may impose a purchase maximum on shareholders that would limit the ability of shareholders to purchase fund shares if their total purchases or account balance exceeds a dollar threshold."

In other words, the 0% expense ratio fund might eventually end up having a balance cap after which you need to find other investments, hopefully using the Fidelity brokerage account you created. Unclear if such a cap would prevent automatic reinvestments of cap gains and dividends for those who were already over the cap once it is applied.

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

Post by passiveTiger » Fri Aug 10, 2018 12:08 am

bost wrote:
Thu Aug 09, 2018 10:53 pm
Interesting note in the prospectus:

"The fund may impose a purchase maximum on shareholders that would limit the ability of shareholders to purchase fund shares if their total purchases or account balance exceeds a dollar threshold."

In other words, the 0% expense ratio fund might eventually end up having a balance cap after which you need to find other investments, hopefully using the Fidelity brokerage account you created. Unclear if such a cap would prevent automatic reinvestments of cap gains and dividends for those who were already over the cap once it is applied.
Very interesting... and disappointing. I have complained about Vanguard's minimums, and I would throw possible Fidelity maximums for the zero ER funds in that same boat.

Exclusions like grandfathering, capital appreciation, and automatic reinvestment would not change my low opinion of floors and ceilings.

This is what a Google search reveals about the number of mutual funds that have language regarding "purchase maximum on shareholders:"

https://www.google.com/search?q=%22purc ... holders%22

I suppose one view would be that this is (technically) just risk mitigation for an unlikely scenario, but (fundamentally) unlikely scenarios happen surprisingly often.

Any excess over a possible maximum limit in FZROX or FZILX could be placed into the FSTMX (0.015%) total US fund or the FTIGX (0.06%) total international fund...

but why should anyone have to do that?

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Re: "Don't Obsess About Expense Ratios"

Post by Finridge » Fri Aug 10, 2018 7:53 pm

UpperNwGuy wrote:
Mon Aug 06, 2018 6:47 pm
BlackHat wrote:
Mon Aug 06, 2018 5:10 pm
He's so right. I'm almost afraid that this zero expense ratio thing might be a bait and switch.
Can you give us a single example from the last 50 years of a brokerage who has engaged in bait and switch by lowering ERs only to later increase them?
Betterment

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Re: "Don't Obsess About Expense Ratios"

Post by randomguy » Fri Aug 10, 2018 7:56 pm

EddyB wrote:
Thu Aug 09, 2018 4:43 pm
TravelGeek wrote:
Tue Aug 07, 2018 12:57 am
willthrill81 wrote:
Tue Aug 07, 2018 12:46 am

I don't need customer service. I do everything online, and it's very easy to use Vanguard to do what I do. On the rare occasion that I've needed to contact Vanguard's staff for some reason, they've been fine.
That is my experience as well. I have never called VG or Fidelity in over 20 years of account ownership. I once walked into a Fidelity Office. Don’t exactly recall why. I suspect they both will generally offer acceptable service if I need it.
While I can do most everything I need to do on either the Fidelity, Vanguard or Schwab websites, my customer service dissatisfaction with Vanguard comes from multiple instances of cost basis errors (which I identified and they were then slow to resolve) and multiple instances of mishandling early "mega backdoor Roth" transactions (which they really struggled with, but now have down). I was paying attention, but had I not been, the tax consequences of the errors would have been substantial. Accuracy is part of customer service, too.
I have had to call vanguard for 2 issues in about 12 years. Each time the service I have gotten has been horrible in the sense that I got incomplete advice and every time I called back I got different advice on how to do it. Eventually the problem was resolved but it was like 12 hour of work on what should have been a 30 min issue. Oh well.

Here is a high level question. When do we care about expenses? People on this board have said paying .25% for betterment is too high. But paying .1% or so for a AIO fund is worth it. And now paying .04% for a TSM fund is also worth it.

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

Post by Leif » Fri Aug 10, 2018 8:08 pm

UpperNwGuy wrote:
Mon Aug 06, 2018 6:47 pm
BlackHat wrote:
Mon Aug 06, 2018 5:10 pm
He's so right. I'm almost afraid that this zero expense ratio thing might be a bait and switch.
Can you give us a single example from the last 50 years of a brokerage who has engaged in bait and switch by lowering ERs only to later increase them?
Vanguard. But I would not call it bait and switch. More like reacting to market/cost forces in most cases.

How about 52 examples? In 2015 52 funds got a higher ER at Vanguard.

However, with a fund call ZERO I doubt they would raise the ER. Very bad press. But I guess they could rename it :wink: .

Also,
Expense ratios tend to vary from time to time on many funds. Many fund companies, including Vanguard and archrival Fidelity, will charge higher expenses if a fund outperforms its benchmark. Fidelity Contrafund, for example, has seen its expense ratio, net of all reductions, vary from 0.81% in 2011 to 0.64% in 2014, according to its prospectus.
Vanguard raises some expense ratios

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Re: "Don't Obsess About Expense Ratios"

Post by donaldfair71 » Sat Aug 11, 2018 8:14 am

passiveTiger wrote:
Thu Aug 09, 2018 8:48 pm
donaldfair71 wrote:
Wed Aug 08, 2018 12:00 pm
If my Vanguard fund at .04 was good enough to keep in lieu of a Fidelity fund at 0.015, why would I jump at 0? I wouldn't move money from one fund company to the next one go from .17 to .13.
If negative tax consequences did not exist, would you move money from one fund company to the next one to go from 0.14% to 0.015% or 0.00%?

That would be a choice for those in Vanguard's VTSMX (0.14%). They can jump to FSTMX (0.015%) or FZROX (0.00%). Their balances in VTSMX should be at least $3,000 and no more than $9,999.99.

I have already posted elsewhere that VTSMX's ER is excessive (viewtopic.php?f=10&t=255356&p=4058229#p4058229).

I cannot see any argument why someone holding VTSMX (or probably any other Vanguard Investor Shares class with an equivalent lower cost option elsewhere) in an IRA should not immediately move it to Schwab or Fidelity or whoever else is significantly lower, although it is likely someone here will make one up.
Oh if there were a 14 basis point ER difference I could certainly see a reason to move, all tax consequences equal or inside an IRA. It's a no-brainer to me.

But it also works both ways with these. Tax implications *not being equal*, those who will use the new Fido funds outside of an IRA have no reason no not to use VTSAX, though it is likely someone here will make one up.

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Re: "Don't Obsess About Expense Ratios"

Post by rkhusky » Sat Aug 11, 2018 8:58 am

passiveTiger wrote:
Thu Aug 09, 2018 8:48 pm
I cannot see any argument why someone holding VTSMX (or probably any other Vanguard Investor Shares class with an equivalent lower cost option elsewhere) in an IRA should not immediately move it to Schwab or Fidelity or whoever else is significantly lower, although it is likely someone here will make one up.
0.14% of $3K is $4. 0.14% of $10K is $14. My time is worth more than that. And I've seen 401k plans with ER's greater than 2%, so 0.14% is great.

Once the cost is below 0.1%, it's all in the noise. At that point, just pick your provider based on how well you like them - customer service, web site, ease-of-use, reliability, etc

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Re: "Don't Obsess About Expense Ratios"

Post by welderwannabe » Sat Aug 11, 2018 9:18 am

rkhusky wrote:
Sat Aug 11, 2018 8:58 am
0.14% of $3K is $4. 0.14% of $10K is $14. My time is worth more than that. And I've seen 401k plans with ER's greater than 2%, so 0.14% is great.

Once the cost is below 0.1%, it's all in the noise. At that point, just pick your provider based on how well you like them - customer service, web site, ease-of-use, reliability, etc
Agreed.
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Re: "Don't Obsess About Expense Ratios"

Post by dwickenh » Sat Aug 11, 2018 11:09 am

To me the "zero" expense funds are like a free dinner to hear a sales pitch. As long as you can say "no" every time, the expense ratio is great.

If you have a hard time saying "no", then stay where you are comfortable(without sales pitches).

Anyone that thinks there wont be sales pitches is kidding themselves.

My opinion, but the future will tell.

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Re: "Don't Obsess About Expense Ratios"

Post by willthrill81 » Sat Aug 11, 2018 2:21 pm

rkhusky wrote:
Sat Aug 11, 2018 8:58 am
Once the cost is below 0.1%, it's all in the noise. At that point, just pick your provider based on how well you like them - customer service, web site, ease-of-use, reliability, etc
That's my take as well. I'm not switching from anyone to anyone else for only a few basis points. Especially since those basis points in savings may be lost due to the lower cost provider's tracking error (i.e. the OP article).

When your average ER is below .1%, the actual dollar gains in going lower are just 'meh'.
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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab » Sat Aug 11, 2018 3:32 pm

Finridge wrote:
Fri Aug 10, 2018 7:53 pm
UpperNwGuy wrote:
Mon Aug 06, 2018 6:47 pm
Can you give us a single example from the last 50 years of a brokerage who has engaged in bait and switch by lowering ERs only to later increase them?
Betterment
What Betterment mutual funds are there?
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Re: "Don't Obsess About Expense Ratios"

Post by passiveTiger » Sat Aug 11, 2018 3:47 pm

rkhusky wrote:
Sat Aug 11, 2018 8:58 am
passiveTiger wrote:
Thu Aug 09, 2018 8:48 pm
I cannot see any argument why someone holding VTSMX (or probably any other Vanguard Investor Shares class with an equivalent lower cost option elsewhere) in an IRA should not immediately move it to Schwab or Fidelity or whoever else is significantly lower, although it is likely someone here will make one up.
0.14% of $3K is $4. 0.14% of $10K is $14. My time is worth more than that. And I've seen 401k plans with ER's greater than 2%, so 0.14% is great.

Once the cost is below 0.1%, it's all in the noise. At that point, just pick your provider based on how well you like them - customer service, web site, ease-of-use, reliability, etc
There is a substantial amount of assets in VTSMX. Those people are paying excessively for it, and they can pay much lower elsewhere. They can then continue to accumulate elsewhere at a lower ER. It’s not so much that they get a better deal at the beginning (although that is a good thing), they will get a better deal period without having to save $3,000 or $1,000 first just for a higher ER.

There is no reason anyone should start investing in VTSMX, and no reason to stay in it in (probably) most cases.

I also think your logic of “I’ve seen 2% elsewhere so 0.14% is great” is so flawed that it just reveals Vanguard bias. If I were to argue that inflation does not need to be considered in planning for retirement in the US because it isn’t even currently 3% and will be 1,000,000% in Venezuela this year, you would probably see the fault in that.

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Re: "Don't Obsess About Expense Ratios"

Post by Earl Lemongrab » Sat Aug 11, 2018 3:56 pm

When Vanguard lowers its fee or ERs, it's because they're your buddy and looking out for you because they have your best interests at heart. If another company lowers theirs below Vanguard it's because they're trying to set a trap for you. Mwa-ha-ha.

Companies trying to make a profit are inherently evil and doomed. This is why non-profit companies dominate all aspects of the commercial world.
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Re: "Don't Obsess About Expense Ratios"

Post by triceratop » Sat Aug 11, 2018 3:57 pm

Earl Lemongrab wrote:
Sat Aug 11, 2018 3:56 pm
When Vanguard lowers its fee or ERs, it's because they're your buddy and looking out for you because they have your best interests at heart. If another company lowers theirs below Vanguard it's because they're trying to set a trap for you. Mwa-ha-ha.

Companies trying to make a profit are inherently evil and doomed. This is why non-profit companies dominate all aspects of the commercial world.
Corporate enterprises may require investment. What is the economic incentive for investment in companies not striving to maximize EPS?
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Re: "Don't Obsess About Expense Ratios"

Post by Barry Barnitz » Sat Aug 11, 2018 4:26 pm

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

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

Post by TimeRunner » Sat Aug 11, 2018 5:51 pm

I manage a handful of parental (trust) accounts at Schwab and have a TIRA and Roth IRA at Fido. Fido and Schwab both have relatively local walk-in offices and in my experience, knowledgeable and responsive customer service via phone, chat, and email as well as local office support including notary services. I have never been pitched on an investment or contacted by a sales person outside of occasional routine advisory emails. IMO, if you are managing your own taxable or tax-advantaged (TIRA, Roth, etc) accounts, Vanguard or Fido or Schwab are pretty much equal, and Vanguard is just fine. But if you have a more complex financial picture, such as managing trust accounts or serving as an executor and dealing with establishing beneficiary accounts, etc, you will probably be more happy with Fido or Schwab. One data point: One of my relatives by marriage dealt with Vanguard as an executor and was very unhappy with multiple requests for forms, repeated duplicate form submissions, varying requests for notary and/or Medallion Signature guarantees, etc. It took many months to sort out. In light of that, I'm happy to have the choice of Fido and Schwab, both of which have local offices, as backstops to Vanguard.
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Re: "Don't Obsess About Expense Ratios"

Post by kevinpet » Sat Aug 11, 2018 6:20 pm

danielc wrote:
Mon Aug 06, 2018 5:04 pm
I would add that once you get to Vanguard-like expense ratios, your expenses become completely dominated by tax efficiency.
I think the key is that once you get to single digit expense ratios, the expense ratio just doesn't much matter. People tend to compare things using ratios and ignore the absolute difference, so going from 4bps to 3bps seems like a 25% savings, but if you have a $100k portfolio, 1bps is $10/year. Arguing with Comcast to get back down to the promotional rate is a better use of your time.

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Re: "Don't Obsess About Expense Ratios"

Post by Broken Man 1999 » Sat Aug 11, 2018 6:53 pm

I calculated our expenses for our Vanguard portfolio this morning, just out of curiosity.

My holdings: $984.21
DW holdings: $223.31
Our holdings: $827.50
Total: $2035.02

Our joint holding is a Vanguard annuity. It has a high ER (for Vanguard) and is about 40% of our total costs.

Our accounts move more than the total ERs probably every day, sometimes many multiples.

ERs have become a rather insignificant expense of our portfolio, I've shed a lot of costs moving to Admiral funds, and ETFs over the years.

Considering I have enjoyed great ERs for many years with Vanguard, for now I will stay with the partner who brought me to the dance. I will never say I won't leave Vanguard for X, but unless I see superior returns for a bit, I wouldn't. I don't invest in funds with no history, even at Vanguard. At least not since when we were a few years from retirement. In retirement, I don't want to wonder how my funds will track their index, I'd rather depend on some historical info, not that it guarantees everything.

All of our holdings are tax-deferred, so we have no drag sometimes present in a taxable account. That will probably change when we have to do RMDs. Of course all withdrawals from our TIRAs do come with a tax haircut.

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Re: "Don't Obsess About Expense Ratios"

Post by rkhusky » Sat Aug 11, 2018 6:55 pm

passiveTiger wrote:
Sat Aug 11, 2018 3:47 pm
There is a substantial amount of assets in VTSMX. Those people are paying excessively for it, and they can pay much lower elsewhere.
The ER for Investor shares is not excessive, it is very reasonable. Paying $14 or less per year is very reasonable for the web site access, basis tracking, tax forms, telephone support, etc., that Vanguard must perform for every account. In fact, I would guess that it doesn't really cover the full cost and the rest of us have to pick up the balance.

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Re: "Don't Obsess About Expense Ratios"

Post by knpstr » Sat Aug 11, 2018 7:11 pm

blaugranamd wrote:
Mon Aug 06, 2018 5:17 pm
Or is that a form of brand loyalty/anchoring bias that behavioral economics has shown makes people more willing to shell out $ unnecessarily? Not saying everyone should dump their current funds immediately but don't just say stuck with Vanguard just cause...
I think a lot of the freight of lower expense ratios was gained going from traditional 0.80% expense ratios to 0.04%
The gain from 0.04% to 0.00% is not nearly as meaningful.

On $1M over the difference of .8 to .04 is .76% that compounded over 30 years is $255K saved.
On $1M over the difference of .04 to .00 is .04% that compounded over 30 years is $12K saved.

I don't think the reasoning is stick with Vanguard "just cause". :beer
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Re: "Don't Obsess About Expense Ratios"

Post by Leif » 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.

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Re: "Don't Obsess About Expense Ratios"

Post by abuss368 » Sat Aug 11, 2018 7:45 pm

I am unsure why Fidelity just did not cut the expense ratio's to their existing index funds. Now anyone with capital gains may not be able to invest in the new offerings.
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Re: "Don't Obsess About Expense Ratios"

Post by triceratop » Sat Aug 11, 2018 7:50 pm

abuss368 wrote:
Sat Aug 11, 2018 7:45 pm
I am unsure why Fidelity just did not cut the expense ratio's to their existing index funds. Now anyone with capital gains may not be able to invest in the new offerings.
Maybe it wasn't in their shareholders' interests. Sorry, I meant Fidelity's, not the fund's; it can be confusing with non-Vanguard fund companies.
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Re: "Don't Obsess About Expense Ratios"

Post by abuss368 » Sat Aug 11, 2018 7:53 pm

triceratop wrote:
Sat Aug 11, 2018 7:50 pm
abuss368 wrote:
Sat Aug 11, 2018 7:45 pm
I am unsure why Fidelity just did not cut the expense ratio's to their existing index funds. Now anyone with capital gains may not be able to invest in the new offerings.
Maybe it wasn't in their shareholders' interests. Sorry, I meant Fidelity's, not the fund's; it can be confusing with non-Vanguard fund companies.
That is an interesting point.
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Re: "Don't Obsess About Expense Ratios"

Post by John Laurens » Sat Aug 11, 2018 8:03 pm

abuss368 wrote:
Sat Aug 11, 2018 7:45 pm
I am unsure why Fidelity just did not cut the expense ratio's to their existing index funds. Now anyone with capital gains may not be able to invest in the new offerings.
They did cut the expense ratios of their existing index funds...across the board over all indexes. Those existing funds track third party indexes which require licensing fees. Of course those with capital gains can invest in the new “ZERO” offerings. Just don’t realize the capital gains.

Regards,
John

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Re: "Don't Obsess About Expense Ratios"

Post by UpperNwGuy » Sat Aug 11, 2018 8:11 pm

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

Post by UpperNwGuy » Sat Aug 11, 2018 8:14 pm

triceratop wrote:
Sat Aug 11, 2018 7:50 pm
abuss368 wrote:
Sat Aug 11, 2018 7:45 pm
I am unsure why Fidelity just did not cut the expense ratio's to their existing index funds. Now anyone with capital gains may not be able to invest in the new offerings.
Maybe it wasn't in their shareholders' interests. Sorry, I meant Fidelity's, not the fund's; it can be confusing with non-Vanguard fund companies.
You really don't like Fidelity, do you? Do you feel the same way about Schwab?
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Re: "Don't Obsess About Expense Ratios"

Post by triceratop » Sat Aug 11, 2018 8:17 pm

UpperNwGuy wrote:
Sat Aug 11, 2018 8:14 pm
triceratop wrote:
Sat Aug 11, 2018 7:50 pm
abuss368 wrote:
Sat Aug 11, 2018 7:45 pm
I am unsure why Fidelity just did not cut the expense ratio's to their existing index funds. Now anyone with capital gains may not be able to invest in the new offerings.
Maybe it wasn't in their shareholders' interests. Sorry, I meant Fidelity's, not the fund's; it can be confusing with non-Vanguard fund companies.
You really don't like Fidelity, do you? Do you feel the same way about Schwab?
I don't dislike Fidelity in an individualized way; it is a profit-seeking entity like any other, including Schwab.
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Re: "Don't Obsess About Expense Ratios"

Post by vineviz » Sat Aug 11, 2018 8:46 pm

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