What are these secret vanguard index trust?

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abracadabra
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Joined: Sun Dec 30, 2018 9:38 pm

What are these secret vanguard index trust?

Post by abracadabra » Fri Jan 11, 2019 12:50 am

These are the fund available in my current employer's 401k plan. I'm not an expert in this, but honestly I've never seen some funds there. For example, this fund No.7555 Vanguard Institutional Total Bond Market Index Trust. I don't seem to be able to find its info online. I don't know what's the expense ratio etc.

Can someone please explain one what is this index trust and how does it differ from index fund? (And why they don't have ticker symbol)

Basically I'm just trying to have the classic 3 fund portfolio, but I couldn't find any of them in my plan... Can I use the Vanguard Institutional 500 Index Trust to mimic VTSAX? Which one can mimic VTIAX?... I am so confused.

Image

shariq1989
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Re: What are these secret vanguard index trust?

Post by shariq1989 » Fri Jan 11, 2019 12:55 am

I have the same kind of trusts in my 401k. From my research, the difference between these and the index fund trackers was minimal. I set and forgot it years ago. I use the 500 Index Trust and Bond Market Trust.

drk
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Location: Seattle

Re: What are these secret vanguard index trust?

Post by drk » Fri Jan 11, 2019 12:56 am

Those are collective investment funds, helpfully described in the wiki. You should consider them identical to the retail Vanguard funds.
Last edited by drk on Fri Jan 11, 2019 12:57 am, edited 1 time in total.

Iridium
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Re: What are these secret vanguard index trust?

Post by Iridium » Fri Jan 11, 2019 12:56 am

They are almost certainly collective investment trusts. The difference with the corresponding mutual fund is miniscule. They get to take advantage of sightly different regulations because they are not sold outside of retirement plans which might lower their expense ratio by a miniscule amount. From an investor standpoint, they are basically identical.

To emulate VTSAX, you should have a ratio of 80/20 of s&p 500 to extended market. See: https://www.bogleheads.org/wiki/Extende ... index_fund for explanation.
Looks like 75/25 is about the right ratio for developed to emerging. https://www.bogleheads.org/wiki/Approxi ... ock_market

Topic Author
abracadabra
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Joined: Sun Dec 30, 2018 9:38 pm

Re: What are these secret vanguard index trust?

Post by abracadabra » Fri Jan 11, 2019 1:05 am

You guys are awesome! Thanks for the info!

TropikThunder
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Re: What are these secret vanguard index trust?

Post by TropikThunder » Fri Jan 11, 2019 1:13 am

abracadabra wrote:
Fri Jan 11, 2019 1:05 am
You guys are awesome! Thanks for the info!
CIT regulations are a little different (as mentioned by Iridium) and one difference of note is that a CIT does not distribute dividends like a regular mutual fund does. For VFIAX (Vanguard S&P500 Admiral shares), the fund collects dividends over time from the individual stock holdings and (by law) must distribute them to the fund's shareholders (quarterly in the case of most Vanguard funds). For the CIT version (Vanguard Institutional 500 Index), the dividends are collected by the fund but build up in the NAV instead of being distributed. The lack of dividends doesn't hamper return, it's just a little jarring to those who are used to seeing them.

dbr
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Re: What are these secret vanguard index trust?

Post by dbr » Fri Jan 11, 2019 10:32 am

An advantage is that you should be seeing the absolute minimum expenses in such trusts. In my 401k the S&P 500 trust had an ER of 0.01%, and someone once reported here an ER of 0.00% for that sort of fund. It is really just a case of economy of scale which any large employer doing what they should be doing would take advantage of.

They aren't secret, but they aren't retail products. In that sense they are also similar to the opportunities in 401k plans for stable value funds. These sorts of things can be reasons for a person to stay in their 401k indefinitely.

retiringwhen
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Re: What are these secret vanguard index trust?

Post by retiringwhen » Fri Jan 11, 2019 10:43 am

dbr wrote:
Fri Jan 11, 2019 10:32 am
An advantage is that you should be seeing the absolute minimum expenses in such trusts. In my 401k the S&P 500 trust had an ER of 0.01%, and someone once reported here an ER of 0.00% for that sort of fund. It is really just a case of economy of scale which any large employer doing what they should be doing would take advantage of.

They aren't secret, but they aren't retail products. In that sense they are also similar to the opportunities in 401k plans for stable value funds. These sorts of things can be reasons for a person to stay in their 401k indefinitely.
I have a plan to stay in my MegaCorp 401(k) for the long-term (aka retirement) as those CITs cut my ER by half vs. in a similar Vanguard IRA. My plan doesn't have any gotcha and they charge $36/year for bookkeeping fees...

These are an example of how to run a low-cost 401(K), generally if your company has them it is a very good sign.

MJS
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Re: What are these secret vanguard index trust?

Post by MJS » Fri Jan 11, 2019 12:30 pm

The Vanguard Institutional funds site states that Institutional Total Bond Market Index Trust "invest(s) in Institutional Select shares of the Vanguard Total Bond Market Index Fund." The ER for Select is 0.01. However, the cost to an institution seems to vary.

Trust

Institutional Select

epargnant
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Re: What are these secret vanguard index trust?

Post by epargnant » Fri Jan 11, 2019 12:44 pm

For example my husband's Vanguard 401K has the Vanguard Institutional 500 Index Trust for an expense ratio of .016 instead of the regular expense ratio of .04.

His 401K funds also do not have dividends or capital gains- I don't really understand the point since we wouldn't be taxed on them anyway. But I guess that's why they don't have to distribute!

retiringwhen
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Re: What are these secret vanguard index trust?

Post by retiringwhen » Fri Jan 11, 2019 12:58 pm

epargnant wrote:
Fri Jan 11, 2019 12:44 pm
His 401K funds also do not have dividends or capital gains- I don't really understand the point since we wouldn't be taxed on them anyway. But I guess that's why they don't have to distribute!
Not having to distribute dividends and CG is a simplification for the CIT thus lower the administrative costs just a little bit. I don't know how much of the ER improvement is from that, but it must be a positive impact.

epargnant
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Re: What are these secret vanguard index trust?

Post by epargnant » Fri Jan 11, 2019 1:06 pm

retiringwhen wrote:
Fri Jan 11, 2019 12:58 pm
Not having to distribute dividends and CG is a simplification for the CIT thus lower the administrative costs just a little bit. I don't know how much of the ER improvement is from that, but it must be a positive impact.
Ah okay, thank you for explaining that. Lowering the ER is certainly worth it, and even admin costs since at some point the employer may decide they are too high and pass the costs on to us.

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