Author Topic: Cheaper small/mid cap index fund?  (Read 5443 times)

Credaholic

  • Stubble
  • **
  • Posts: 223
  • Location: Seattle
    • Credaholic
Cheaper small/mid cap index fund?
« on: January 19, 2015, 10:41:05 PM »
Looking to diversify our portfolio a bit, and need a small/mid cap index fund. I like the look of NAESX but the trade fee is $75. Not sure if this is because I'm doing it through Fidelity or if this would be the fee at Vangaurd too, but either way it's $75 for me. Any thoughts on an alternative fund that would be cheaper?

MDM

  • Senior Mustachian
  • ********
  • Posts: 10630
Re: Cheaper small/mid cap index fund?
« Reply #1 on: January 19, 2015, 10:45:52 PM »
According to https://personal.vanguard.com/us/funds/snapshot?FundId=0048&FundIntExt=INT#tab=3 there would be $0 purchase fee by going within Vanguard.

Not sure what you mean by "either way..."?

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 589
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: Cheaper small/mid cap index fund?
« Reply #2 on: January 19, 2015, 11:31:40 PM »
Before you invest, you should read the rules at your brokerage. It's very, very important. This is a lot of money you're talking about.

The $75 is likely for buying a mutual fund outside of your company's fund family. You can probably get almost exactly the same thing with no commission at all by buying in the family. For example, at Fidelity, you'd have to pay a commission to get a Vanguard mutual fund, but could get a Fidelity one for free.

GGNoob

  • Pencil Stache
  • ****
  • Posts: 726
  • Age: 34
  • Location: Colorado
Re: Cheaper small/mid cap index fund?
« Reply #3 on: January 20, 2015, 06:52:52 AM »
If you are at Fidelity, you may as well go with FSSVX
https://fundresearch.fidelity.com/mutual-funds/summary/316146216

Credaholic

  • Stubble
  • **
  • Posts: 223
  • Location: Seattle
    • Credaholic
Re: Cheaper small/mid cap index fund?
« Reply #4 on: January 20, 2015, 08:53:53 AM »
According to https://personal.vanguard.com/us/funds/snapshot?FundId=0048&FundIntExt=INT#tab=3 there would be $0 purchase fee by going within Vanguard.

Not sure what you mean by "either way..."?

I meant regardless of Vanguard's fees, either way I'm with Fidelity so facing a $75 fee for this fund, which is too steep. It's a Solo 401K, and I chose to go with Fidelity because Vanguard charges a $20 yearly fee for the account.

If you are at Fidelity, you may as well go with FSSVX
https://fundresearch.fidelity.com/mutual-funds/summary/316146216

I had considered that, but NAESX looked just a bit better. I guess that's what I'll have to do though since the $75 weighs against it. Thanks!

starguru

  • Pencil Stache
  • ****
  • Posts: 753
Re: Cheaper small/mid cap index fund?
« Reply #5 on: January 20, 2015, 09:17:15 AM »
I just bought VB,the vanguard small cap index, with some dividend payments I received. I had to pay $7 though to trade at Fidelity, but the lower ER will more than make up for it.

GGNoob

  • Pencil Stache
  • ****
  • Posts: 726
  • Age: 34
  • Location: Colorado
Re: Cheaper small/mid cap index fund?
« Reply #6 on: January 20, 2015, 09:31:15 AM »
What about iShares Core S&P Small-Cap ETF? It's commission free at Fidelity.
https://screener.fidelity.com/ftgw/etf/goto/snapshot/snapshot.jhtml?symbols=IJR

skyrefuge

  • Handlebar Stache
  • *****
  • Posts: 1015
  • Location: Suburban Chicago, IL
Re: Cheaper small/mid cap index fund?
« Reply #7 on: January 20, 2015, 10:36:45 AM »
I had considered that, but NAESX looked just a bit better. I guess that's what I'll have to do though since the $75 weighs against it. Thanks!

If two index funds from two providers track the same index, neither will "look better" than the other (assuming they have similar expense ratios). The two funds are doing the same thing.

The reason NAESX looks different from FSSVX is because they track different indexes. NAESX=CRSP Small Cap Index; FSSVX=Russell 2000. The Russell 2000 is a "smaller-cap" index than CRSP's.

Vanguard's VTWO ETF tracks the Russell 2000, and thus, its past performance exactly matches FSSVX.

Given your initial desire for a "small/mid cap" fund, you might say that a CRSP-tracking fund better fits your goal than the smaller-tilting Russell 2000. But I strongly doubt that your needs are actually that specific, and you will be just fine with FSSVX. Or maybe you could even just go with FSEMX, Fidelity's Extended Market Index, which covers both small- and mid-caps in the same fund.

Or even FSTMX, the Total Market Index Fund. Because if you were enough of a market expert to know exactly what your optimal portfolio tilt would look like, you wouldn't be asking us what fund to buy!

Credaholic

  • Stubble
  • **
  • Posts: 223
  • Location: Seattle
    • Credaholic
Re: Cheaper small/mid cap index fund?
« Reply #8 on: January 20, 2015, 05:43:54 PM »
What about iShares Core S&P Small-Cap ETF? It's commission free at Fidelity.
https://screener.fidelity.com/ftgw/etf/goto/snapshot/snapshot.jhtml?symbols=IJR
Thanks, I'll check IJR out. Would be nice to be commission free!

I had considered that, but NAESX looked just a bit better. I guess that's what I'll have to do though since the $75 weighs against it. Thanks!

If two index funds from two providers track the same index, neither will "look better" than the other (assuming they have similar expense ratios). The two funds are doing the same thing.

The reason NAESX looks different from FSSVX is because they track different indexes. NAESX=CRSP Small Cap Index; FSSVX=Russell 2000. The Russell 2000 is a "smaller-cap" index than CRSP's.

Vanguard's VTWO ETF tracks the Russell 2000, and thus, its past performance exactly matches FSSVX.

Given your initial desire for a "small/mid cap" fund, you might say that a CRSP-tracking fund better fits your goal than the smaller-tilting Russell 2000. But I strongly doubt that your needs are actually that specific, and you will be just fine with FSSVX. Or maybe you could even just go with FSEMX, Fidelity's Extended Market Index, which covers both small- and mid-caps in the same fund.

Or even FSTMX, the Total Market Index Fund. Because if you were enough of a market expert to know exactly what your optimal portfolio tilt would look like, you wouldn't be asking us what fund to buy!

So true! In no way am I trying to portray myself as a market expert. Very much the opposite. Since I'm no expert, I've followed the MMM advice of putting my money in a total market index, so I am heavily invested in FSTMX. Thanks to other advice from these boards, I've started to worry that I should diversify outside of large blend. Also thanks to these boards, I've learned to look for low cost funds, which is one of the reasons I was leaning more towards NAESX, the other being that past performance is a bit better than FSSVX. But if there isn't a Fidelity fund tacking the same index, then FSSVX is likely what I will go with instead. Thanks for letting me know about FSEMX as well.

skyrefuge

  • Handlebar Stache
  • *****
  • Posts: 1015
  • Location: Suburban Chicago, IL
Re: Cheaper small/mid cap index fund?
« Reply #9 on: January 20, 2015, 06:07:31 PM »
Since I'm no expert, I've followed the MMM advice of putting my money in a total market index, so I am heavily invested in FSTMX.

Ok, good. But that means you already own all the stocks that are included in FSSVX, NAESX, and FSEMX. That's why they call it "total market". :-) A small-cap or mid-cap fund is merely a subset of a total market fund. So adding a small-cap fund does nothing to increase your diversification. It just "overweights" you on small-cap companies (you would have proportionally more money in small-caps than a market-capitalization-weighted index does). That *can* be a valid approach (some research shows that overweighting small-caps has historically beaten a cap-weighted portfolio), but don't confuse it with diversification.

If you really want more diversification, then I would recommend an international index fund instead of a small-cap fund. Because, here's where the "total market" name is actually misleading: it stupidly refers only to the total US market. So if you add something like FSGUX, then you will definitely increase your diversification, and essentially own all the public companies in the world.

See http://www.bogleheads.org/wiki/Three-fund_portfolio

Credaholic

  • Stubble
  • **
  • Posts: 223
  • Location: Seattle
    • Credaholic
Re: Cheaper small/mid cap index fund?
« Reply #10 on: January 22, 2015, 11:04:15 AM »
Ok, good. But that means you already own all the stocks that are included in FSSVX, NAESX, and FSEMX. That's why they call it "total market". :-) A small-cap or mid-cap fund is merely a subset of a total market fund. So adding a small-cap fund does nothing to increase your diversification. It just "overweights" you on small-cap companies (you would have proportionally more money in small-caps than a market-capitalization-weighted index does). That *can* be a valid approach (some research shows that overweighting small-caps has historically beaten a cap-weighted portfolio), but don't confuse it with diversification.

Thank you so much for this clarification! When I initially got my "investment strategy" from MMM this is what I thought. Then I guess I started over complicating things. I was doing research trying to find the closest fund to FSTMX available in DH's 401K, and then saw FSTMX labeled as a Large Blend which I took to mean Large Cap, and then suddenly I thought I might be putting too many eggs in one basket. This makes me feel much better and happy to stick everything in FSTMX. And thanks for the link to the Three-Fund Portfolio. This is exactly what I want - to Keep It Simple, Stupid!