2 Misleading Fidelity Target Date Funds

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deikel
Posts: 778
Joined: Sat Jan 25, 2014 7:13 pm

Re: 2 Misleading Fidelity Target Date Funds

Post by deikel » Wed Sep 11, 2019 3:36 pm

sport wrote:
Wed Sep 11, 2019 3:03 pm
deikel wrote:
Wed Sep 11, 2019 2:57 pm
Just because it has a date in its name does not make it low fee....neither are the Vanguards ones by the way -they are lower, but they charge a fee for using the underlying index funds...for really no reason/service at all.
I believe that Vanguard only charges the fees on the underlying funds, and no extra fee for a fund-of-funds.

This is from the prospectus for one of the Target Funds.

Management Fees None
12b-1 Distribution Fee None
Other Expenses None
Acquired Fund Fees and Expenses 0.12%
Total Annual Fund Operating Expenses 0.12%
Yes, but check what class of funds they picked as the underlying funds....they get you there ...see other post
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

deikel
Posts: 778
Joined: Sat Jan 25, 2014 7:13 pm

Re: 2 Misleading Fidelity Target Date Funds

Post by deikel » Wed Sep 11, 2019 3:47 pm

TropikThunder wrote:
Wed Sep 11, 2019 3:36 pm
deikel wrote:
Wed Sep 11, 2019 3:25 pm
..I don't think that's done in a particularly transparent fashion, nor does it live up to the Boglehead hype of Vanguard looking out the most for its customers IMO
Considering they’ve always used investor shares in TD finds, I don’t see a lack of transparency or anything deceptive. Vanguard’s not perfect, but the things some people complain about these days is frankly silly IMO.
I know this is the boglehead forum and Vanguard is the holy gospel.....but seriously, just because it has always been done that way seems an odd defense...

...just look at some of the responses here and you clearly see the misconception people have...so it is deceptive in that sense....does it do true harm ? Probably not given that the competition charges ultimately the same - just in a different way.

But it could be done differently and if Vanguard were smart, they could actually reduce the fees by 0.1% with absolutely no problem, extra work or extra cost at all.

And if we would steer people to actually do it themselves, they could easily do it and make 1000 USD/per million invested every year...sitting in front of the PC for all of what, 15 min for rebalancing ? 100 USD per 100k invested....seems an OK hourly rate to me...
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

student
Posts: 3755
Joined: Fri Apr 03, 2015 6:58 am

Re: 2 Misleading Fidelity Target Date Funds

Post by student » Wed Sep 11, 2019 4:10 pm

deikel wrote:
Wed Sep 11, 2019 3:25 pm
student wrote:
Wed Sep 11, 2019 3:14 pm
sport wrote:
Wed Sep 11, 2019 3:03 pm
deikel wrote:
Wed Sep 11, 2019 2:57 pm
Just because it has a date in its name does not make it low fee....neither are the Vanguards ones by the way -they are lower, but they charge a fee for using the underlying index funds...for really no reason/service at all.
I believe that Vanguard only charges the fees on the underlying funds, and no extra fee for a fund-of-funds.
Correct. No additional fee. For example, https://investor.vanguard.com/mutual-fu ... /fees/0695 says "Acquired fund fees & expenses" 0.14%, which seem correct corresponding the underlying fund with the proper weights. (I did not perform the calculation.)
Only half way correct:

Vanguard is loading up their target date fund with investor shares rather then admirals shares (eg Vanguard Target Retirement 2065 Fund (VLXVX)) both of which are available to you as a public.

So they basically get more fee money charging themselves the higher cost investor fees rather then assuming that their own money volume will easily justify Admiral shares (starting at 3000 investment by the way for the public).

Yes, on paper it loos like they don't charge extra for the target fund, but if you do the three fund on your own you can choose Admiral shares and save about 0.1 % on the fees.....

...I don't think that's done in a particularly transparent fashion, nor does it live up to the Boglehead hype of Vanguard looking out the most for its customers IMO
I believe what I said is entirely correct. The statement was they do not charge fees in addition to those incurred by the underlying funds. Your complaint is of a different nature, they do not use admiral funds, which is known to bogleheads and it is a frequent complaint. Keep in mind that in the old days (last year), one needs $10,000 to invest in an admiral fund. So one needs much more to copy the asset allocation of a given target date fund. Vanguard is not going to have a loop hole for people to get into admiral funds via target date funds. Even nowadays, with $3,000, it is not enough to copy the asset allocation of a given target date mutual fund. Having said that, I agree that it would be good for investors if they use admiral funds as underlying funds, or at least have an admiral version of target date funds.
Last edited by student on Wed Sep 11, 2019 4:13 pm, edited 2 times in total.

student
Posts: 3755
Joined: Fri Apr 03, 2015 6:58 am

Re: 2 Misleading Fidelity Target Date Funds

Post by student » Wed Sep 11, 2019 4:12 pm

deikel wrote:
Wed Sep 11, 2019 3:33 pm
sport wrote:
Wed Sep 11, 2019 3:18 pm
student wrote:
Wed Sep 11, 2019 3:14 pm
sport wrote:
Wed Sep 11, 2019 3:03 pm
deikel wrote:
Wed Sep 11, 2019 2:57 pm
Just because it has a date in its name does not make it low fee....neither are the Vanguards ones by the way -they are lower, but they charge a fee for using the underlying index funds...for really no reason/service at all.
I believe that Vanguard only charges the fees on the underlying funds, and no extra fee for a fund-of-funds.
Correct. No additional fee. For example, https://investor.vanguard.com/mutual-fu ... /fees/0695 says "Acquired fund fees & expenses" 0.14%, which seem correct corresponding the underlying fund with the proper weights. (I did not perform the calculation.)
What is Fidelity's policy on this, for both index and active Freedom Funds?
Fidelity adds around 6 bps to it as a true fee, but they do use the lowest fee class as the underlying funds (some of them at 0 fee)- at least the two 2060 funds I just checked worked that way

Which makes it overall the same cost to the enduser (give or take some bps), I just find it more transparent and logical doing it this way.

I have not checked active, no interest in active :happy
Thanks for checking.

Silence Dogood
Posts: 1054
Joined: Tue Feb 01, 2011 9:22 pm

Re: 2 Misleading Fidelity Target Date Funds

Post by Silence Dogood » Wed Sep 11, 2019 4:58 pm

deikel wrote:
Wed Sep 11, 2019 3:47 pm
TropikThunder wrote:
Wed Sep 11, 2019 3:36 pm
deikel wrote:
Wed Sep 11, 2019 3:25 pm
..I don't think that's done in a particularly transparent fashion, nor does it live up to the Boglehead hype of Vanguard looking out the most for its customers IMO
Considering they’ve always used investor shares in TD finds, I don’t see a lack of transparency or anything deceptive. Vanguard’s not perfect, but the things some people complain about these days is frankly silly IMO.
I know this is the boglehead forum and Vanguard is the holy gospel.....but seriously, just because it has always been done that way seems an odd defense...

...just look at some of the responses here and you clearly see the misconception people have...so it is deceptive in that sense....does it do true harm ? Probably not given that the competition charges ultimately the same - just in a different way.

But it could be done differently and if Vanguard were smart, they could actually reduce the fees by 0.1% with absolutely no problem, extra work or extra cost at all.

And if we would steer people to actually do it themselves, they could easily do it and make 1000 USD/per million invested every year...sitting in front of the PC for all of what, 15 min for rebalancing ? 100 USD per 100k invested....seems an OK hourly rate to me...
I think you're getting a little ahead of yourself here.

It was only fairly recently that Vanguard merged their investor and admiral share classes.

Also, there are rumors that, within the next couple of years, Vanguard will lower the cost of their Target Retirement funds by using the equivalent ETF share classes for the underlying funds.

As far as Vanguard being the holy gospel, Vanguard gets plenty of criticism on this forum (including from yours truly).

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vineviz
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Re: 2 Misleading Fidelity Target Date Funds

Post by vineviz » Wed Sep 11, 2019 5:36 pm

deikel wrote:
Wed Sep 11, 2019 3:47 pm
But it could be done differently and if Vanguard were smart, they could actually reduce the fees by 0.1% with absolutely no problem, extra work or extra cost at all.
I can see why people think this is true, but it's not.

First, Vanguard IS smart. Whatever failings they have around IT and customer service, a lack of market awareness or regulatory sophistication are not among them.

Second, there actually ARE very salient reasons that the change you suggest would not be easy, fast, or cheap to implement. Products with a fund-of-funds structure, especially ones marketed primarily through workplace retirement plans, are regulated by both the SEC and the Department of Labor.

Trust me, Vanguard is neither unaware nor indifferent to the fact that their asset allocation funds are more expensive than the Admiral-class versions of the underlying funds. If the fix was easy, fast, and/or cheap they'd have implemented it already.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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