Author Topic: Fidelity FSTVX vs Vanguard VTSAX  (Read 22161 times)

Beach_Stache

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Fidelity FSTVX vs Vanguard VTSAX
« on: July 17, 2016, 06:34:51 AM »
I have had my money in Fidelity for a while but I know from reading this blog and others that most prefer Vanguard.  I currently have all of my 401k in my TSP and my wife in her company's 401k plan but my Roth IRA and post-tax investments are all in Fidelity really b/c that's the account I've had opened since I was 20.  I currently have about $85k in my Roth IRA and $36k in my post-tax account.  I was going to consolidate the random mutual funds I have and I know the majority would say to put it in Vanguard VTSAX and let it sit, which I am fine with since I have plenty of time until retirement, but since I already have a Fidelity account I was looking at just putting it in the Fidelity FSTVX.  The Fees are actually 0.045% as opposed to Vanguard's 0.05% and the returns seem similar.  Am I making a mistake by keeping money in Fidelity and just being lazy?  Should I transfer everything to Vanguard or is it okay to keep in Fidelity and put it in FSTVX?

geekette

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #1 on: July 17, 2016, 07:43:22 AM »
IMHO, Vanguard has pushed Fidelity to lower fees, so the two (at least for indexing) are quite comparable. I know Vanguard lowers fees and offers more service as your investments build with them. Check the break points at Fidelity for their fee structure. If you're happy, no need to move.

johnny847

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #2 on: July 17, 2016, 08:28:25 AM »
Well switching your current funds in your taxable account would incur a tax cost if you have any gains, which it sounds like you do. I do have a preference for Vanguard but wouldn't incur a tax cost to switch when Fidelity's fees are comparable (or in this case, ever so slightly better).

As for new contributions, I would advise you though to look at one thing that isnt spoken of all that often: the tax efficiency. Look back at your old tax documents and see if FSTVX issued any capital gains distributions, and their percentage of qualified dividends. VTSAX has never issued capital gains distributions and has had a 100% qualified dividend rate except for in 2013 when it was 94%.
Vanguard does some trickery to keep the capital gains distributions at zero and qualified dividend rates as high as possible. I've heard but haven't ever seen a definitive report that Vanguard pays for fund expenses from unqualified dividends first, thereby avoiding having to issue such dividends to investors.

Frankies Girl

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #3 on: July 17, 2016, 08:55:19 AM »
I have all my portfolio with Fidelity and my very large taxable account contains just the one fund: FSTVX. There are many here and even the Bogleheads site (John Bogle founded Vanguard) that like Fido and use them instead of Vanguard. Don't get me wrong; Vanguard is the gold standard, but I personally started out at Fido, like the customer service and overall interfaces and calculators and website and choose to stay with them as long as I continue to be happy with them since I can index invest with them just as well as with Vanguard.

As long as you're using Fido's low cost index funds (and stay away from their managed funds or professional advising services), you'll be getting the same deal as if you were with Vanguard in virtually every comparison. They've gotten their index funds expense ratios at least as low as Vanguard, and in some cases better apparently.

As far as the tax efficiency, I do get cap gains/dividends in April (small amount) and December (large amount). I can't speak to how VTSAX works to reduce the taxes on their fund, but some googling lead me to this over at Bogleheads:

Quote
Vanguard mitigates (not guaranteed to negate, but often does) the typical mutual fund capital gains exposure through their dual MF/ETF structure. Fidelity doesn't have that so will probably have more capital gains distributions on average. I'm not sure I would call it MUCH more expensive, though - it's still a low turnover index fund.

and

Quote
Fidelity Spartan Total Market FSTVX is definitely less tax efficient than Vanguard Total Market VTSAX. Per Morningstar (thru Jan 31, 2016):

Pretax 10-year returns are 6.52% for Vanguard and 6.45% for Fidelity.
Tax-adjusted 10-yr returns are 6.06% for Vanguard and 5.71% for Fidelity (difference of 0.35% may be surprising?).
Morningstar assumes maximum ordinary tax rate for income, long capital gain rate of 15%, and no state taxes.

Source

So I get that Vanguard might have a slight advantage and also agree with a poster on that thread wondering why Vanguard doesn't mention their funds' tax efficiency more since Fido's advertising/marketing has started directly referencing Vanguard and how they are lower cost in most instances. ;)

My one big reason for not worrying too much at the moment is that I am and shall remain in the 10-15% taxable bracket so any and all cap gains and dividends do not create any taxes for me. That may change in the future as my portfolio grows, but I'm still figuring the tax ramifications out for the current decade and how the taxable issues may effect me in the future.

johnny847

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #4 on: July 17, 2016, 12:08:06 PM »
As far as the tax efficiency, I do get cap gains/dividends in April (small amount) and December (large amount). I can't speak to how VTSAX works to reduce the taxes on their fund, but some googling lead me to this over at Bogleheads:

Quote
Vanguard mitigates (not guaranteed to negate, but often does) the typical mutual fund capital gains exposure through their dual MF/ETF structure. Fidelity doesn't have that so will probably have more capital gains distributions on average. I'm not sure I would call it MUCH more expensive, though - it's still a low turnover index fund.

Oh yeah I forgot about that. Their dual MF/ETF structure is protected by a patent until 2023, meaning unless Fidelity or any other competitor wants to license that patent from Vanguard (fat chance of that), nobody else can mitigate capital gains distributions in the manner that Vanguard does.

Source

Frankie's girl, we're not concerned about whether you get dividends or not. Every US stock market fund issues dividends. It's the percentage of them that are qualified that is up for discussion.

johnny847

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #5 on: July 17, 2016, 12:10:12 PM »
My one big reason for not worrying too much at the moment is that I am and shall remain in the 10-15% taxable bracket so any and all cap gains and dividends do not create any taxes for me. That may change in the future as my portfolio grows, but I'm still figuring the tax ramifications out for the current decade and how the taxable issues may effect me in the future.

This is an incorrect generalization. Long term capital gains and qualified dividends do not create federal taxes for you. However, any short term capital gians and unqualified dividends do create a federal tax liability.

Were your past distributions from FSTVX short or long term? And were the dividends all qualified? This type of information is generally speaking hard to find, and I haven't been able to find it on the fund page or prospectus.

Frankies Girl

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #6 on: July 17, 2016, 12:20:21 PM »
My one big reason for not worrying too much at the moment is that I am and shall remain in the 10-15% taxable bracket so any and all cap gains and dividends do not create any taxes for me. That may change in the future as my portfolio grows, but I'm still figuring the tax ramifications out for the current decade and how the taxable issues may effect me in the future.

This is an incorrect generalization. Long term capital gains and qualified dividends do not create federal taxes for you. However, any short term capital gians and unqualified dividends do create a federal tax liability.

Were your past distributions from FSTVX short or long term? And were the dividends all qualified? This type of information is generally speaking hard to find, and I haven't been able to find it on the fund page or prospectus.

Zero in taxes since I've had zero short term/unqual so far then (going on 4 years). I've paid no taxes on them so far per my tax returns... just reviewed last year's tax statement and it was all qualified and no short term generated anywhere, but I didn't go check further back.

That's cool that the tax avoidance structure is actually patented by Vanguard... did not know that!


johnny847

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #7 on: July 17, 2016, 12:27:56 PM »
My one big reason for not worrying too much at the moment is that I am and shall remain in the 10-15% taxable bracket so any and all cap gains and dividends do not create any taxes for me. That may change in the future as my portfolio grows, but I'm still figuring the tax ramifications out for the current decade and how the taxable issues may effect me in the future.

This is an incorrect generalization. Long term capital gains and qualified dividends do not create federal taxes for you. However, any short term capital gians and unqualified dividends do create a federal tax liability.

Were your past distributions from FSTVX short or long term? And were the dividends all qualified? This type of information is generally speaking hard to find, and I haven't been able to find it on the fund page or prospectus.

Zero in taxes since I've had zero short term/unqual so far then (going on 4 years). I've paid no taxes on them so far per my tax returns... just reviewed last year's tax statement and it was all qualified and no short term generated anywhere, but I didn't go check further back.

That's cool that the tax avoidance structure is actually patented by Vanguard... did not know that!

Nice.

Yeah I'm curious if otehr companies would implement a similar strategy once Vanguard's patent runs out. I doubt it though.

johnny847

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #8 on: July 17, 2016, 12:32:03 PM »
Oh yeah one thing I just remembered.

While the tax cost from distributions from FTVSX is zero for those in the 15% bracket or lower, it still counts as income for purposes of ACA subsidies and FAFSA among other things. It also takes away space that could otherwise be used to run your Roth conversion pipeline (as in, if you wanted to convert tIRA money to a Roth IRA up to the 15% bracket, that FTSVX distribution is eating up some of that space).

So while there is not a direct tax cost to FTVSX distrubtions in the lower brackets, it can still incur costs elsewhere.

forummm

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #9 on: July 17, 2016, 01:29:49 PM »
FTVSX is a great fund. I'd be fine having it instead of VTSAX. No need to switch.

Indexer

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #10 on: July 17, 2016, 02:07:27 PM »
I would go with VTSAX even at the negligible higher cost. That doesn't mean I would sell what you have if it will cause a tax bite, but if there is no tax bite I would switch. I would send new contributions to VTSAX either way.

I can't find it now but I was reading an article showing that VTSAX after all considerations really has a cost of about 0.01%.

The reasons are tracking error and lending income.

Tracking error:  How good does the fund track it's index? If the index is up 10% is the fund also up 10% before expenses?  VTSAX is really good at tracking to the point there is very little if any tracking error. A similar fund could cost less but if it has more tracking error it could perform worse over time.

Lending income:  Mutual funds can loan out shares of stocks to short sellers and earn interest income in the process. Vanguard runs at cost. That means the interest income they get for lending shares goes back to the shareholders in the form of higher dividends. Some Vanguard funds bring in so much interest income that it technically offsets the expense ratio completely. They can't show a negative expense ratio because the income gets added to the dividends. Fidelity runs for profit. They are less likely to give you this interest income back.

Result:  Look at the performance.

VTSAX: 1yr 2.14, 3yr 11.07, 5yr 11.59, 10yr 7.54
FSTVX: 1yr 2.04, 3yr 10.98, 5yr 11.53, 10yr 7.47.

VTSAX outperforms over every time frame. Costs matter. For index funds tracking error and lending income also matter. ;)
« Last Edit: July 17, 2016, 02:10:37 PM by Indexer »

johnny847

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #11 on: July 17, 2016, 03:03:53 PM »
I would go with VTSAX even at the negligible higher cost. That doesn't mean I would sell what you have if it will cause a tax bite, but if there is no tax bite I would switch. I would send new contributions to VTSAX either way.

I can't find it now but I was reading an article showing that VTSAX after all considerations really has a cost of about 0.01%.

The reasons are tracking error and lending income.

Tracking error:  How good does the fund track it's index? If the index is up 10% is the fund also up 10% before expenses?  VTSAX is really good at tracking to the point there is very little if any tracking error. A similar fund could cost less but if it has more tracking error it could perform worse over time.

Lending income:  Mutual funds can loan out shares of stocks to short sellers and earn interest income in the process. Vanguard runs at cost. That means the interest income they get for lending shares goes back to the shareholders in the form of higher dividends. Some Vanguard funds bring in so much interest income that it technically offsets the expense ratio completely. They can't show a negative expense ratio because the income gets added to the dividends. Fidelity runs for profit. They are less likely to give you this interest income back.

Result:  Look at the performance.

VTSAX: 1yr 2.14, 3yr 11.07, 5yr 11.59, 10yr 7.54
FSTVX: 1yr 2.04, 3yr 10.98, 5yr 11.53, 10yr 7.47.

VTSAX outperforms over every time frame. Costs matter. For index funds tracking error and lending income also matter. ;)

I had a thread on this. Sort of. I was looking at index funds beating the index. I never looked at VTSAX because I wanted to look at longer time frames, but the same principles still apply.

http://forum.mrmoneymustache.com/investor-alley/want-to-beat-the-index-buy-an-index-fund!/

Paul der Krake

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #12 on: July 17, 2016, 03:17:53 PM »
I have a small-ish, under 6 figures, taxable account at Fidelity filled with their funds because my employer will not let me or my spouse have a Vanguard brokerage account (long story).

When I change jobs, I would like to start transitioning all taxable monies to Vanguard for tax efficiency.

I can't decide whether it's worth it to deal with paying the capital gains that year (no chance of being in the 15% bracket) and enjoy the benefits of being at Vanguard ASAP, or just leave the funds already there at Fido until I liquidate the account, say to buy property.

Thoughts?

forummm

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #13 on: July 17, 2016, 04:44:42 PM »
I have a small-ish, under 6 figures, taxable account at Fidelity filled with their funds because my employer will not let me or my spouse have a Vanguard brokerage account (long story).

When I change jobs, I would like to start transitioning all taxable monies to Vanguard for tax efficiency.

I can't decide whether it's worth it to deal with paying the capital gains that year (no chance of being in the 15% bracket) and enjoy the benefits of being at Vanguard ASAP, or just leave the funds already there at Fido until I liquidate the account, say to buy property.

Thoughts?

It's hard to imagine the potential savings (since WRs are the same) being enough to outweigh the capital gains taxes you will pay plus forgone long term returns on those tax dollars.

johnny847

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #14 on: July 17, 2016, 05:09:54 PM »
I have a small-ish, under 6 figures, taxable account at Fidelity filled with their funds because my employer will not let me or my spouse have a Vanguard brokerage account (long story).

When I change jobs, I would like to start transitioning all taxable monies to Vanguard for tax efficiency.

I can't decide whether it's worth it to deal with paying the capital gains that year (no chance of being in the 15% bracket) and enjoy the benefits of being at Vanguard ASAP, or just leave the funds already there at Fido until I liquidate the account, say to buy property.

Thoughts?

It's hard to imagine the potential savings (since WRs are the same) being enough to outweigh the capital gains taxes you will pay plus forgone long term returns on those tax dollars.

Yeah all the stuff that I'm citing here should be pretty minor in the end. I mention all of it because I think it's academically interesting, and because I think people should make informed decisions.
The chances of you coming out ahead after paying a tax cost are pretty slim.

Tyler

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #15 on: July 18, 2016, 09:47:04 AM »
Both Vanguard and Fidelity are good companies. Many people like Vanguard for the corporate structure, and others prefer Fidelity for the website and customer service. IMHO worrying about the relative quality of these two excellent choices is over-thinking it.
« Last Edit: July 18, 2016, 09:49:44 AM by Tyler »

Beach_Stache

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #16 on: July 19, 2016, 07:11:13 AM »
Thanks so much for the responses!  So sounds like if I have it in the right fund that the difference isn't a huge deal and probably not worth switching over just to switch, maybe 0.05% swing either way once all is said and done.  Appreciate the responses!

flyersman

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #17 on: July 19, 2016, 08:08:47 AM »
I have $ in Fidelity. Really like their webportal and the mobile app is fantastic.
Have lots of funds in FSTVX

FenderStrat

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #18 on: July 19, 2016, 08:47:57 AM »
When I decided to start investing in index funds I went with Fidelity because I also already had an account with them. No regrets.

kenmoremmm

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #19 on: January 15, 2019, 10:56:31 PM »
I know this is an old thread, but I just logged onto my 401k account and see that my VTSAX funds have been converted (without notice) to FSTVX. For the tax implications noted earlier in the thread, is any of that relevant to a traditional 401k stache? Or, for that situation, are these funds effectively identical?

MDM

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #20 on: January 16, 2019, 01:10:33 AM »
I know this is an old thread, but I just logged onto my 401k account and see that my VTSAX funds have been converted (without notice) to FSTVX. For the tax implications noted earlier in the thread, is any of that relevant to a traditional 401k stache? Or, for that situation, are these funds effectively identical?
No.
Yes.

MustacheAndaHalf

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #21 on: January 16, 2019, 09:22:18 AM »
Although I prefer Vanguard, I'd suggest you stick with Fidelity.  You know to watch out for lower expense ratio funds, so you won't wind up in one of Fidelity's more expensive funds.

I'd also suggest the following fund with $1.7 billion in assets:
https://www.morningstar.com/funds/xnas/fzrox/quote.html

It's Fidelity's new "0.00%" expense ratio total U.S. stock market fund.  If you want to avoid high expense ratios, well then pick the fund with a 0.00% expense ratio.  Vanguard has a 0.02% expense ratio fund (for those investing $100M+ in one fund), so 0.00% isn't quite as crazy as it sounds.  Funds can provide liquidity to institutional investors who need it badly enough to pay for it (to avoid impacting the market, which costs even more).  So the fund might be able to earn profits from other sources than the expense ratio.

kenmoremmm

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #22 on: January 29, 2019, 05:34:33 PM »
was just reading this over at JL collin's site:
https://jlcollinsnh.com/2013/06/28/stocks-part-viii-b-should-you-avoid-your-companys-401k/

he basically rails on fidelity (for good reason). so, in 2019, has fidelity shed their hidden fees on FSTVX? i'm sure someone can find the answer sooner and easier than i can. thanks!

MDM

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Re: Fidelity FSTVX vs Vanguard VTSAX
« Reply #23 on: January 29, 2019, 06:27:38 PM »
was just reading this over at JL collin's site:
https://jlcollinsnh.com/2013/06/28/stocks-part-viii-b-should-you-avoid-your-companys-401k/

he basically rails on fidelity (for good reason). so, in 2019, has fidelity shed their hidden fees on FSTVX? i'm sure someone can find the answer sooner and easier than i can. thanks!
Even Vanguard funds, when offered through a 401k/403b, can cost the employee more than if purchased directly from Vanguard.  It is very much plan-dependent, so you'll have to look at the fees for your plan.