Author Topic: Fidelity Brokeragelink: vanguard transaction fees vs. higher expense ratio  (Read 3604 times)

Sunflower

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I opened up my first 401K this fall and am trying to figure out the best place to invest the money I'm shoveling into it each month.

I currently have $14,000 and will be maxing it out this year. There weren't a lot of fund options so I chose a 2055 target date fund that has a 1.07% exp ratio and is about 90:10 stock:bonds.

I recently noticed two things:
1. 30% of the stocks in the above fund are in my employer's stock, which I'm opposed to holding in my retirement account (I'd much rather have a broad stock market exposure).
2. Tere is an option to transfer the funds to "Fidelity Brokeragelink" which opens up a ton of options but I'm not sure how to compare and contrast the fees.

For example, within the brokerage link you can invest in vanguard's 2055 target fund which has a similar asset allocation but with a 0.18 exp ratio and a $75.00 transaction fee. (They also have a bunch of other vanguard index funds but I chose this one to keep some consistency in the comparison. I couldn't find the admiral shares version but if that's an option I assume the exp ratio would be even lower.)

They also have a hundred other funds to choose from. Fidelity is promoting some similar target date funds within the site. A representative one has a an exp ratio of 0.65% and no other fees that I can find.

Can someone explain what this transaction/load fee is and how to compare between the funds? The fine print that I can find says:

"A transaction fee is similar to a brokerage fee or commission which you pay when you buy or sell a stock. For some funds available through Fidelity you are required to pay a transaction fee (TF). however, you will not pay a sales load on TF fee funds. You will only be charged a transaction fee when you buy a FundsNetwork TF fund, not when you sell one. All other fees and expenses described in the fund's prospectus still apply. You can choose to buy or sell shares directly from the fund itself or its principal underwriter or distributor without paying a transaction fee to Fidelity.

Online Transaction Fees: $49.95 for most funds. Certain funds will have a transaction fee of $75. To identify any applicable transaction fees associated with the purchase of a given fund, please refer to the "Fees and Distributions" tab.

Fidelity Automated Service Telephone (FAST): 25% off representative-assisted rates, maximum: $187.50, minimum: $75
Representative-Assisted: 0.75% of principal, Max $250, Min $100
Automatic Investment: $5 per transaction, after the initial investment"

Does this mean that if I set it up to invest automatically in the vanguard fund I'll be paying $75 initially plus $5 every month that more money gets plopped in? If I put 50% of my income into my 401K each month it would be maxed out by July so that would be $100 in fees? How do you weight that up front fee with the lower exp ratio for the rest of the time the money is invested? I was originally planning to do smaller even contributions throughout the year so I can start investing in some taxable accounts as well.

I have my Roth IRA in vanguard (currently $11,000 in VTSAX) and will be opening a taxable account with them later this year but I'm still working out what I want my overall asset allocation to be. I'm definitely a set it and forget it type of investor and can deal with market fluctuation. I'm not sold on the three options above but since a target retirement account was one of the few reasonable options in the initial 401k funds I had to choose from, I stuck with them throughout the examples.

Thanks in advance for any explanations and advice!

Another Reader

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Check to see if the Fidelity Spartan funds are offered either in the 401k choices themselves or in the brokerage link account.  They are the same as the Vanguard funds (total market, S&P 500, extended market) and have similar expense ratios.  There should be no transaction fee to purchase them.

Sunflower

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They do have the Spartan Funds, thanks for the tip!