Fidelity IS NOW CHEAPER Than Vanguard!

[heybro]

I just checked the expense ratios at Fidelity versus Vanguard for Total Stock Mutual Fund:

Vanguard:
Less than 10k: .16
More than 10k: .05

Fidelity:
Less than 10k: .09
More than 10k: .045
And get this, I also found a 'more than 1 million': .015

This is so cool!  I have an account at Fidelity and have been 'stressing' over having to switch to Vanguard to get the lower expense ratio.  I like Fidelity, started with Fidelity, am used to Fidelity and just didn't want to make the switch.  Now I don't have too!  I guess 'rate chasing' is a bad thing, huh.  I know it can be exhausting always changing online banks to catch the best rate.  This is cool!

Mark

[McStache]

I did some research and it looks like this is across the board for the common index funds you see mentioned on these boards

Fund                 Vanguard      Fidelity   
                   <10,000 >=10,000 <10,000 >=10,000
REIT                0.26%   0.12%   0.23%   0.09%
S&P 500             0.16%   0.05%   0.09%   0.045%
Emerging Markets    0.33%   0.15%   0.30%   0.14%
Extended Market     0.22%   0.09%   0.10%   0.07%
Global ex US        0.26%   0.13%   0.18%   0.11%
Total International 0.19%   0.12%   0.18%   0.11%
Total Market        0.16%   0.05%   0.09%   0.045%
Total Bond          0.16%   0.06%   0.15%   0.05%

ETF               Vanguard Fidelity
REIT                0.12%   0.08%
S&P 500             0.05%   0.07%
Emerging Markets    0.15%   0.16%
Extended Market     0.09%   0.12%
Total International 0.13%   0.14%
Total Market        0.05%   0.03%
Total Bond          0.06%   0.08%


ETA: ETF chart

[With This Herring]

Huh, that is a surprise!  Does Fidelity charge you to purchase or sell them?  I know Vanguard doesn't.  Does Fidelity have other fees?

[Interest Compound]

"Cheaper than Vanguard" isn't necessarily new. Some iShares ETFs and Schwab ETFs are cheaper (though with a higher spread).

I've been pretty stubborn with the Vanguard vs Fidelity debate. Even when I have to pay a bit more, I stick with Vanguard. Why? Because this:



I just can't shake the feeling that these prices are loss leaders, and either won't last, or will somehow end up being more than Vanguard in the form of lower returns. For example, their Total US and Total International funds have 0.50% and 1% redemption fees if you sell within 90 days.

Not that big of a deal, but I just don't want to be constantly looking out for how Fidelity might be trying to recoup their loss on my index-only account.

[kenaces]

I think I have seen a few schwab ETFs that are cheaper than vanguard.

good new that there is enough competition on price to give us lots of good options :)

[EricL]

I invested with Fidelity years back. In addition to insane fees the fund dragged well below the S&P in a market downturn, seemed the very last to recover, and performed crappy overall. That was years ago and while things change I'd be very reluctant to switch back for a tiny percent without shoving an electron microscope up Fidelity's butt.

[Greenpez]

 This came up with respect to the total market funds earlier, there were some interesting things brought up in that thread:

http://forum.mrmoneymustache.com/investor-alley/fidelity-fstvx-vs-vanguard-vtsax/

[mathjak107]

fidelity's funds have been doing quite well over the last few years . some better then others .

http://www.reuters.com/article/funds-fidelity-investing-idUSL5N0L23P520140128

what you have to understand is there are thousands of funds out there . most we never heard of , they have very little investor money and one year they are on top and the next year the bottom .

some small unknown funds have excellent managers with great stock picking ability but it isn't the fact the managers can't beat the markets . it is the fact the funds have little investor money and expenses kill them because of it .

but if you follow investor money , the mega funds generally do pretty well and the odds of getting alpha for higher fees increases greatly
i only use and track fidelity funds and most of mine have been excellent long term performers . the amount of investor money in the funds show investors are happy with the results .

once you eliminate the tiny funds who go from top to the bottom  and have little investor money the odds of doing better become much greater .

there is a difference between a fund not being able to beat its index vs an investor not being able to.  if you follow investor money you will usually find their money is in funds that do beat their index over all . unfortunately poor investor behavior generally has small investors doing worse then any of the funds index or not .

they even increase more if you take a more active approach .

i use certain funds as the bigger picture changes and then swap them for other funds as they move out of their sweet spot . that has been my approach for decades .

[mathjak107]

i use the fidelity insight newsletter , and have used it since 1987 .

compared to an s&p 500 index fund  or total market fund which runs within a percent or so of each other  this is a comparison of the alpha the portfolio i used, the growth model , which is just a portfolio of plain old  non index fidelity funds used dynamically . occasionally a fund is swapped out for a better choice .

the difference after fund expenses between an s&p index fund and the portfolio of actively managed fidelity  funds  is about 438k . while i am not saying indexing is not a good way to go , i am saying do not be so quick to dismiss actively managed funds either ,  once you  follow the money in to the bigger middle of the pack of long term performers your odds become much better at winning . .

1 fund is not a portfolio and ultimately it is all about how the total portfolio and strategy works as a team .
 
   

Portfolio Performance: Growth
As of 12/31/15
Value of $100,000 invested on 12/31/86

Date          Growth   S&P 500   Difference
12/31/1987   $102,765   $105,286   -$2,521
12/31/1988   $129,534   $122,713   $6,821
12/31/1989   $168,890   $161,564   $7,326
12/31/1990   $161,464   $156,842   $4,622
12/31/1991   $227,014   $204,643   $22,371
12/31/1992   $262,599   $219,761   $42,837
12/31/1993   $346,455   $241,910   $104,545
12/31/1994   $339,285   $245,068   $94,216
12/31/1995   $431,591   $337,581   $94,010
12/31/1996   $514,409   $415,170   $99,240
12/31/1997   $645,374   $553,403   $91,971
12/31/1998   $709,066   $712,728   -$3,662
12/31/1999   $914,529   $862,493   $52,036
12/31/2000   $816,056   $783,761   $32,295
12/31/2001   $763,605   $690,985   $72,620
12/31/2002   $632,982   $538,492   $94,490
12/31/2003   $925,018   $693,844   $231,173
12/31/2004   $1,039,784   $769,652   $270,131
12/31/2005   $1,156,661   $808,337   $348,324
12/31/2006   $1,337,789   $935,976   $401,813
12/31/2007   $1,435,767   $987,069   $448,698
12/31/2008   $822,516   $613,416   $209,101
12/31/2009   $1,083,957   $775,484   $308,473
12/31/2010   $1,275,663   $892,238   $383,425
12/31/2011   $1,253,930   $910,762   $343,168
12/31/2012   $1,454,744   $1,057,079   $397,665
12/31/2013   $1,840,425   $1,398,453   $441,972
12/31/2014   $2,018,408   $1,590,341   $428,067
12/31/2015   $2,050,563   $1,612,235   $438,328

   

[Frankies Girl]

"Cheaper than Vanguard" isn't necessarily new. Some iShares ETFs and Schwab ETFs are cheaper (though with a higher spread).

I just can't shake the feeling that these prices are loss leaders, and either won't last, or will somehow end up being more than Vanguard in the form of lower returns. For example, their Total US and Total International funds have 0.50% and 1% redemption fees if you sell within 90 days.

Not that big of a deal, but I just don't want to be constantly looking out for how Fidelity might be trying to recoup their loss on my index-only account.

The Fidelity index funds are meant to be loss leaders, but they'll not get rid of them as they are their way of competing with Vanguard. Unless something happens to Vanguard, they'd have no reason to drop their competitive funds. And they wouldn't offer the funds if they were truly losing money; they just aren't making as much of a profit as other funds.  ;)

I find it funny how suspicious everyone is of Fido. It's a business. They're in it to make money, so of course they'll add in more and better features than their leading competitor to stay ahead of them. They hope you'll be so in love with all of the stuff they offer, that you might venture off into their managed funds and eventually consider their professional portfolio advisors. The key is to not ever do that. And if they do penalize you in some way? Well, there's always Vanguard to shift over to. Believe me, they are very aware of the contingency of folks using them for index investing only. If they didn't like that, they wouldn't offer them.

https://www.bogleheads.org/wiki/Fidelity
^and even the Bogleheads support using Fido

It's the same as being the kind of credit card user that pays off their cards in full each month. We're [index investors] not their target audience because they can't make as much money off of us, but they're not going to eliminate the perks that drew you in because they'll be fine with the relatively small amount of us that only do index investing since index funds are only a small offering in their arsenal - they believe in casting out many nets to catch as many fish (customers) as possible. They make a little off of us, but much more off of all those people that just can't help but gamble and have the "play the lotto" mentality. Can't fault them for taking advantage of that, since I'm profiting in so many ways for a very small amount of ER (smaller than I'd pay at Vanguard anyway).

And if they for some reason decide to do away with the index funds or the funds themselves perform poorly? Then shift over to Vanguard. Seriously, a few forms, a couple of weeks and boom - done.  I personally don't fuss with my stuff very often but I do look at how everything is doing at least twice a year and analyze the numbers (mostly for rebalancing). That's really all it would take to catch anything hinky. Which I do not think will ever happen because Fido is in the business to make money - so they'll be very cautious about screwing around with stuff and losing customers.

For the record, I am very happy with Fidelity, and have no plans whatsoever to move to Vanguard. Because Fido is a for-profit, they can afford to plow more money into developing things to make their company more attractive. Strictly my opinion but to me, they have much better customer service, better website and app interfaces, better calculators and access to an ever-growing range of index funds that are performing in line with Vanguard's offerings.

Vanguard is the gold standard, but I personally have no issues with using Fido to my own advantage - and profiting from the better overall experience.

[markpst]

I am excited since my 403b is with Fidelity. In my plan, the only cheap option is FSTVX at 0.045%. I cringe when I think of the years I was in their expensive lifecycle fund. I kept some funds in that until earlier this year.

The cheapest bond option in my plan has a 0.52% expense ratio, so I will purchase bonds outside of my 403b.

Everything else I have either is or will be at Vanguard.

[ZiziPB]

^+1 to what Frankies Girl says. 

I am also a very satified Fido customer.  The majority of my portfolio is at Fidelity, invested in index funds, with a small portion at Schwab.  I use a Fidelity Rewards Visa for 2% cash back on purchases and use Schwab Investor checking for a great checking account that refunds ATM fees world-wide.  Very satisfied with both companies.  I see no need to switch to Vanguard.

[dougules]

Follow the money.  Vanguard is owned by its funds, which by extension means we own it.  Fidelity is a privately held, so we don't own it.   I'd rather put my money in a company I own.  Vanguard has to answer to us, and we get the profits.   

[johnny847]

"Cheaper than Vanguard" isn't necessarily new. Some iShares ETFs and Schwab ETFs are cheaper (though with a higher spread).

I've been pretty stubborn with the Vanguard vs Fidelity debate. Even when I have to pay a bit more, I stick with Vanguard. Why? Because this:



I just can't shake the feeling that these prices are loss leaders, and either won't last, or will somehow end up being more than Vanguard in the form of lower returns. For example, their Total US and Total International funds have 0.50% and 1% redemption fees if you sell within 90 days.

Not that big of a deal, but I just don't want to be constantly looking out for how Fidelity might be trying to recoup their loss on my index-only account.

Only relevant in a taxable account, but Vanguard funds are more tax efficient. Fidelity's funds issue capital gains distributions while Vanguard's funds don't because of a method protected by a patent that funnels the capital gains to their ETF versions. Additionally, I don't know if Fidelity does this but Vanguard takes special care to pay for fund expenses from unqualified dividends first to increase the percentage of qualified dividends

ETA: Note that there is at least one corner case where capital gains distributions can actually be a good thing : FAFSA. To qualify for a simplified formula which ignores assets, or for an automatic zero EFC, one must not be required to file your taxes with the full 1040. If you need to file  Schedule D you must use the fill 1040. If you need to liquidate some of your taxable account during the period your kid is going to college, then buying and selling shares will require schedule D and disqualify you from the simplified formula and automatic zero EFC. However capital gains distributions do not require Schedule D - it can be reported on 1040A. While you can't control the amount of capital gains you get via distributions, the tax penalty paid in choosing a fidelity fund and getting a capital gains distribution may be far less than choosing a vanguard fund and having to sell some shares which will reduce financial aid.

[Interest Compound]

i use the fidelity insight newsletter , and have used it since 1987 .

compared to an s&p 500 index fund  or total market fund which runs within a percent or so of each other  this is a comparison of the alpha the portfolio i used, the growth model , which is just a portfolio of plain old  non index fidelity funds used dynamically . occasionally a fund is swapped out for a better choice .

the difference after fund expenses between an s&p index fund and the portfolio of actively managed fidelity  funds  is about 438k . while i am not saying indexing is not a good way to go , i am saying do not be so quick to dismiss actively managed funds either ,  once you  follow the money in to the bigger middle of the pack of long term performers your odds become much better at winning . .

1 fund is not a portfolio and ultimately it is all about how the total portfolio and strategy works as a team .
 
   

Portfolio Performance: Growth
As of 12/31/15
Value of $100,000 invested on 12/31/86

Date          Growth   S&P 500   Difference
12/31/1987   $102,765   $105,286   -$2,521
12/31/1988   $129,534   $122,713   $6,821
12/31/1989   $168,890   $161,564   $7,326
12/31/1990   $161,464   $156,842   $4,622
12/31/1991   $227,014   $204,643   $22,371
12/31/1992   $262,599   $219,761   $42,837
12/31/1993   $346,455   $241,910   $104,545
12/31/1994   $339,285   $245,068   $94,216
12/31/1995   $431,591   $337,581   $94,010
12/31/1996   $514,409   $415,170   $99,240
12/31/1997   $645,374   $553,403   $91,971
12/31/1998   $709,066   $712,728   -$3,662
12/31/1999   $914,529   $862,493   $52,036
12/31/2000   $816,056   $783,761   $32,295
12/31/2001   $763,605   $690,985   $72,620
12/31/2002   $632,982   $538,492   $94,490
12/31/2003   $925,018   $693,844   $231,173
12/31/2004   $1,039,784   $769,652   $270,131
12/31/2005   $1,156,661   $808,337   $348,324
12/31/2006   $1,337,789   $935,976   $401,813
12/31/2007   $1,435,767   $987,069   $448,698
12/31/2008   $822,516   $613,416   $209,101
12/31/2009   $1,083,957   $775,484   $308,473
12/31/2010   $1,275,663   $892,238   $383,425
12/31/2011   $1,253,930   $910,762   $343,168
12/31/2012   $1,454,744   $1,057,079   $397,665
12/31/2013   $1,840,425   $1,398,453   $441,972
12/31/2014   $2,018,408   $1,590,341   $428,067
12/31/2015   $2,050,563   $1,612,235   $438,328

Is this the past performance of the current picks, or are these the actual results you'd have gotten if you followed it live? By that I mean, would your account actually have gone from $102,765 to $129,534 from if you held the 1987 picks for one year? Can you provide a source?

Also, why are they comparing a "Growth Model" fund to the S&P500? That's a common trick to make things look better than they actually are. How did it perform against a comparable index fund?

From a cursory glance of the data, the Growth Model gained 60% in the first two years, then slightly under-performed a comparable index moving forward. In other words, if you weren't holding this particular "Growth Model" during the years 1988 and 1989 (before anyone could've possibly known how "great" these picks would end up), you would've underperformed.

My Survivorship Bias bells are ringing! It's easy to beat the index when you have 1000 chances (the number of newsletters out there), and ignore all the ones that failed. No one here claims active investing will fail 100% of the time. The claim is that it's almost impossible to capture any advantage, as you have to identify the winners beforehand, and the amount of risk is huge. Had you picked the wrong newsletter in 1987, you could be in a world of hurt right now.

Even if I started in 1987, and put 50% of my salary in the Fidelity Growth Model (DCAing into it), I would've underperformed. It seems the only way I could've won, is by:

• Investing a lump sum in 1987, when this was just another random new newsletter with no history or record.
• Not continuing to invest throughout the years with my paychecks/additional savings.
• Either putting all of my money in this one newsletter (again, when it was new with no history or record), or at least enough of my money to counteract all the losses from my other failed newsletter picks (and most of them fail). Compared to simply picking the index and moving on.

It seems the required criteria to actually get ahead when active investing is massive.

I guess the question isn't "Which newsletters have an amazing previous record?", but "How do I pick these winners...before they're winners?"

[Interest Compound]

And if they do penalize you in some way? Well, there's always Vanguard to shift over to.

Many of us end up with a sizable taxable account when aspiring to FIRE. You're effectively locked-in to your investing choices early on, as the tax-hit only grows over the years. Considering that, it doesn't seem to make much sense to choose a company for the long-term whose interests aren't aligned with yours. If we index-investors continue to be unprofitable for them (by staying index-investors), things will have to change. I'd rather not have my money with them when that happens.

Think about it, Fidelity has offices in downtown Manhattan (and every other major city), an army of sales-men/women, a comparatively large marketing budget...etc. Vanguard has none of those expenses, and their index fund expense ratios are now almost identical. If indexing gets too big at Fidelity...something has to give.

[boarder42]

vanguard's overhead is so low and they are offering these rates i dont see how companies with the overhead of chuck and fidelity can even come close to competing.  they are probably doing some fancy accounting to make these funds look like they are profitable internally and pushing overhead to other parts of their business.  or they are jsut flat out taking losses to get you in the door.  best case vanguard realizes they can get slightly cheaper and remain profitable.

[johnny847]

vanguard's overhead is so low and they are offering these rates i dont see how companies with the overhead of chuck and fidelity can even come close to competing.  they are probably doing some fancy accounting to make these funds look like they are profitable internally and pushing overhead to other parts of their business.  or they are jsut flat out taking losses to get you in the door.  best case vanguard realizes they can get slightly cheaper and remain profitable.

Fidelity always reports a gross and net expense ratio for their funds. The difference between gross and net is net is "after any fee waiver and/or expense reimbursements that will reduce any fund operating expenses." I could swear that for their index funds their gross expense ratio was always higher than their net, but it is currently not so.

[mathjak107]

i use the fidelity insight newsletter , and have used it since 1987 .

compared to an s&p 500 index fund  or total market fund which runs within a percent or so of each other  this is a comparison of the alpha the portfolio i used, the growth model , which is just a portfolio of plain old  non index fidelity funds used dynamically . occasionally a fund is swapped out for a better choice .

the difference after fund expenses between an s&p index fund and the portfolio of actively managed fidelity  funds  is about 438k . while i am not saying indexing is not a good way to go , i am saying do not be so quick to dismiss actively managed funds either ,  once you  follow the money in to the bigger middle of the pack of long term performers your odds become much better at winning . .

1 fund is not a portfolio and ultimately it is all about how the total portfolio and strategy works as a team .
 
   

Portfolio Performance: Growth
As of 12/31/15
Value of $100,000 invested on 12/31/86

Date          Growth   S&P 500   Difference
12/31/1987   $102,765   $105,286   -$2,521
12/31/1988   $129,534   $122,713   $6,821
12/31/1989   $168,890   $161,564   $7,326
12/31/1990   $161,464   $156,842   $4,622
12/31/1991   $227,014   $204,643   $22,371
12/31/1992   $262,599   $219,761   $42,837
12/31/1993   $346,455   $241,910   $104,545
12/31/1994   $339,285   $245,068   $94,216
12/31/1995   $431,591   $337,581   $94,010
12/31/1996   $514,409   $415,170   $99,240
12/31/1997   $645,374   $553,403   $91,971
12/31/1998   $709,066   $712,728   -$3,662
12/31/1999   $914,529   $862,493   $52,036
12/31/2000   $816,056   $783,761   $32,295
12/31/2001   $763,605   $690,985   $72,620
12/31/2002   $632,982   $538,492   $94,490
12/31/2003   $925,018   $693,844   $231,173
12/31/2004   $1,039,784   $769,652   $270,131
12/31/2005   $1,156,661   $808,337   $348,324
12/31/2006   $1,337,789   $935,976   $401,813
12/31/2007   $1,435,767   $987,069   $448,698
12/31/2008   $822,516   $613,416   $209,101
12/31/2009   $1,083,957   $775,484   $308,473
12/31/2010   $1,275,663   $892,238   $383,425
12/31/2011   $1,253,930   $910,762   $343,168
12/31/2012   $1,454,744   $1,057,079   $397,665
12/31/2013   $1,840,425   $1,398,453   $441,972
12/31/2014   $2,018,408   $1,590,341   $428,067
12/31/2015   $2,050,563   $1,612,235   $438,328

Is this the past performance of the current picks, or are these the actual results you'd have gotten if you followed it live? By that I mean, would your account actually have gone from $102,765 to $129,534 from if you held the 1987 picks for one year? Can you provide a source?

Also, why are they comparing a "Growth Model" fund to the S&P500? That's a common trick to make things look better than they actually are. How did it perform against a comparable index fund?

From a cursory glance of the data, the Growth Model gained 60% in the first two years, then slightly under-performed a comparable index moving forward. In other words, if you weren't holding this particular "Growth Model" during the years 1988 and 1989 (before anyone could've possibly known how "great" these picks would end up), you would've underperformed.

My Survivorship Bias bells are ringing! It's easy to beat the index when you have 1000 chances (the number of newsletters out there), and ignore all the ones that failed. No one here claims active investing will fail 100% of the time. The claim is that it's almost impossible to capture any advantage, as you have to identify the winners beforehand, and the amount of risk is huge. Had you picked the wrong newsletter in 1987, you could be in a world of hurt right now.

Even if I started in 1987, and put 50% of my salary in the Fidelity Growth Model (DCAing into it), I would've underperformed. It seems the only way I could've won, is by:

• Investing a lump sum in 1987, when this was just another random new newsletter with no history or record.
• Not continuing to invest throughout the years with my paychecks/additional savings.
• Either putting all of my money in this one newsletter (again, when it was new with no history or record), or at least enough of my money to counteract all the losses from my other failed newsletter picks (and most of them fail). Compared to simply picking the index and moving on.

It seems the required criteria to actually get ahead when active investing is massive.

I guess the question isn't "Which newsletters have an amazing previous record?", but "How do I pick these winners...before they're winners?"

yes , these are the actual net figures , i have been in it since 1986 .

as i said in another thread , there really is no way you can compare it to much else  . many of the funds were unique at times and comparing them to index's would not be right either . trying to compare portfolio's in a what if scenario really is  fruitless as well as really near impossible if you wanted to compare apples to apples .

there is  rebalancing involved  with a conventional portfolio typically  , these portfolio's are never rebalanced , funds are swapped totally for better choices .

about the only thing you can do is just see if you are happy with the results . i know i was .

as far as trusting the models in 1986 ?  they used popular fidelity funds , there was no reason not to . i know in the first model i had already owned 2 out of the 5 funds back then ..

there was no real market timing involved , no trying to pick the hottest funds . it was simply owning well matched portfolio's that fit the bigger picture  .funds were swapped once in a while after their weightings were used through the sweet spot and better choices found .

were the better choices not so much better at times ?  sure they were . but what had the model do so well is it was right more  times than wrong .

i can put portfolio's together in my sleep but i like using the newsletter because it keeps me from myself .

i was never happy being average at anything , so i am a tinkerer . i would always be second guessing the last move and planning the next move  or trying to outsmart the markets .

now i pay little attention to our multiple 7 figure portfolio . 30 seconds a week gets devoted to reading the friday update and that is the whole portfolio mgmt . i have not concerned myself with portfolio decisions in decades and love it .

it left me plenty of time to concentrate on learning about all the other aspects of retirement planning .  i was able to concentrate on learning the ins and outs of social security , estate planning , medicare  , etc

[JumpInTheFIRE]

vanguard's overhead is so low and they are offering these rates i dont see how companies with the overhead of chuck and fidelity can even come close to competing.  they are probably doing some fancy accounting to make these funds look like they are profitable internally and pushing overhead to other parts of their business.  or they are jsut flat out taking losses to get you in the door.  best case vanguard realizes they can get slightly cheaper and remain profitable.

Currently at Fido, their total market fund (FSTAX) has assets of $34.48 billion and their S&P 500 index (FUSEX) which has the same expense ratios, has assets of $101.16 billion, which means each year they will make Fidelity about $15.5 and $45.5 million, respectively, at an .045% expense ratio.  Since they just follow indexes all of the required trades are automated so most of the costs will be either trading costs or customer costs.  I doubt Fidelity's trading costs are too high since they already have the infrastructure and traders on the payroll and the index-only investors probably don't incur much of a customer cost, as they most likely do everything online and are the types that rarely require human assistance (which is expensive).  They are making $61 million just on their lowest cost funds, I'll bet they are easily making a profit even at that price and they are making even more on all the other investments that the people who are drawn in by their low-cost funds will make. 

 

[CorpRaider]

I would just note that being organized as a mutual company isn't some panacea, depending on the executives.  Vanguard has its culture and the investors will likely keep it on the straight and narrow path long after Jack passes on, but State Farm and many other insurers and healthcare entities that aren't close to cheap are organized as mutual organizations.  No profits to distribute to shareholders but can pay executives fat stacks and buy jets for them to jot around in, etc...

[ooeei]

It's always been interesting to me that the whole credit union vibe draws so many people to vanguard.  Just because something is non profit doesn't mean it's the most efficient.  There are plenty of ways for non profits to waste money.  Excessive employee perks, excessive employees (hiring friends), extravagant buildings, large bonuses, etc.  Look at American colleges and hospitals for  great examples of inefficient non profits.

This doesn't necessarily mean vanguard is bad, it's not, but don't give it a free pass because of its company structure.  There are others factors (like the prices they charge and long term consistency) that should be more important in making your decision.  To argue that it's better to pay more at vanguard because of how it's structured isn't very convincing to me.

[mathjak107]

i use fidelity 90% and vanguard only 10% . they do not offer all the things fidelity does . i don't like vanguards customer service either .

at fidelity because of our account size we are private access clients and have our own assigned local salesperson .

we do some things locally with them like attend seminars  and talk to our team who we do some brain storming with .

they even tested some new optimizing social security software with us , which is in house use  only .

of course if the funds weren't performing well it all would be a moot point but it is almost 30 years now and we are happy with the results .

[nobodyspecial]

This doesn't necessarily mean vanguard is bad, it's not, but don't give it a free pass because of its company structure.  There are others factors (like the prices they charge and long term consistency) that should be more important in making your decision.  To argue that it's better to pay more at vanguard because of how it's structured isn't very convincing to me.

True, but it may be logical to pay a small premium for the Vanguard structure.
You know the other funds low fees are a loss leader, so they are going to be trying to upsell you into other funds and other products with larger fees, or they may gradually increase the fees. The time and effort spent declining the new offerings and watching your accounts for  extra fees has a cost.

With Vanguard you can be more  relaxed about ignoring them on the assumption that they will "do the right thing"

[Interest Compound]

This doesn't necessarily mean vanguard is bad, it's not, but don't give it a free pass because of its company structure.  There are others factors (like the prices they charge and long term consistency) that should be more important in making your decision.  To argue that it's better to pay more at vanguard because of how it's structured isn't very convincing to me.

True, but it may be logical to pay a small premium for the Vanguard structure.
You know the other funds low fees are a loss leader, so they are going to be trying to upsell you into other funds and other products with larger fees, or they may gradually increase the fees. The time and effort spent declining the new offerings and watching your accounts for  extra fees has a cost.

With Vanguard you can be more  relaxed about ignoring them on the assumption that they will "do the right thing"

Exactly this. We see this everywhere in the financial industry. Credit cards, CDs, savings accounts...etc. The best deals never last long when they aren't profitable (or even when they are). When breaking the lock-in 10-20-30 years from now results in a 30%+ penalty on your entire life-savings (or at least an appreciable amount of your life-savings), when you're in the middle of long-term FIRE attempt......it just seems silly to subject yourself to that risk for a prettier website the few times a year you need to login.

[MustacheAndaHalf]

It's always been interesting to me that the whole credit union vibe draws so many people to vanguard.  Just because something is non profit doesn't mean it's the most efficient.  There are plenty of ways for non profits to waste money.  Excessive employee perks, excessive employees (hiring friends), extravagant buildings, large bonuses, etc.  Look at American colleges and hospitals for great examples of inefficient non profits.

Vanguard isn't a non-profit.

I think you're conflating tax-exempt "non-profits" with mutual companies that strive to return profits to shareholders.  You mentioned "American colleges", but Yale doesn't return profits to students.  It has instead built up a multi-billion dollar endowment fund.  Same with hospitals, which are not owned by patients.  Being a non-profit doesn't mean it's incentives are aligned.

What you see at credit unions, typically, are lower fees.  Similarly, Vanguard offers low expense ratios.  You can point to Fidelity - but why did Fidelity introduce an S&P 500 fund?  To avoid getting crushed by Vanguard.  Fidelity and Schwab still offer many other funds they'd prefer you to buy, where they make more money.  Their incentives aren't aligned with clients.  But they very much want to win the marketing war, which is why they're competing with Vanguard on fees.

[mathjak107]

It's always been interesting to me that the whole credit union vibe draws so many people to vanguard.  Just because something is non profit doesn't mean it's the most efficient.  There are plenty of ways for non profits to waste money.  Excessive employee perks, excessive employees (hiring friends), extravagant buildings, large bonuses, etc.  Look at American colleges and hospitals for  great examples of inefficient non profits.

This doesn't necessarily mean vanguard is bad, it's not, but don't give it a free pass because of its company structure.  There are others factors (like the prices they charge and long term consistency) that should be more important in making your decision.  To argue that it's better to pay more at vanguard because of how it's structured isn't very convincing to me.

credit unions unlike banks pay no income taxes  on profits  .  that is why they can pay out more in interest . they actually have an unfair advantage over banks because their  structure allows it .

[boarder42]

It's always been interesting to me that the whole credit union vibe draws so many people to vanguard.  Just because something is non profit doesn't mean it's the most efficient.  There are plenty of ways for non profits to waste money.  Excessive employee perks, excessive employees (hiring friends), extravagant buildings, large bonuses, etc.  Look at American colleges and hospitals for  great examples of inefficient non profits.

This doesn't necessarily mean vanguard is bad, it's not, but don't give it a free pass because of its company structure.  There are others factors (like the prices they charge and long term consistency) that should be more important in making your decision.  To argue that it's better to pay more at vanguard because of how it's structured isn't very convincing to me.

credit unions unlike banks pay no income taxes  on profits  .  that is why they can pay out more in interest . they actually have an unfair advantage over banks because their  structure allows it .

I wouldn't call it unfair. Go watch the big short and how no one went to jail over that and tell me banks are still unfair.

Disclaimer. I have a mortgage and do my own math to make sure it makes sense. But no everyone is smart enough to do math even around here

[mathjak107]

it is still a competitive advantage that they have over banks who are in the same business despite what you may think about banks .

we have the same kind of issues here in nyc with push cart business's .  the fee's for getting the right to have your hot dog wagon in front of a popular tourist place are insane  while members of certain groups have no fee or  much lower fees .

[boarder42]

it is still a competitive advantage that they have over banks who are in the same business despite what you may think about banks .

we have the same kind of issues here in nyc with push cart business's .  the fee's for getting the right to have your hot dog wagon in front of a popular tourist place are insane  while members of certain groups have no fee or  much lower fees .

It's a similar business technically not the same one is a for profit business the offer services that are similar but it's not the same. But yeah continue your war on people looking out for the good of the people that have them hold their money.

All my money is in a big bank I have nothing against them. But your point is not valid

[Indexer]

My reply to a similar topic:

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. ;)

[johnny847]

My reply to a similar topic:

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. ;)

Yup. And with enough cost cutting and lending income, index funds can actually beat the index!

[MustacheAndaHalf]

it is still a competitive advantage that they have over banks who are in the same business despite what you may think about banks .

Big banks offer investment options - the credit unions I know do not.  They are limited in their lending to consumers.

A credit union that wants to offer large business loans has to change it's status.  They are not in the same business.

[mathjak107]

they are in the same business when it comes to competing  for your money .

[heybro]

Oh wow!  It is hard to know what to do!

I like the credit union analogy.  I almost switched to a credit union from a big bank.  I decided against it.  The credit union may be 'better' in terms of the principles it is founded on, but their locations are hard to get too, they feel 'small' and 'dumpy,' have short hours of operations, and their bill pay was operated out of a clunky website and required you to use certain accounts and/or be charged for it!

Whereas, my big evil bank, may be founded on a 'not so wholesome culture / for profit' but their website is slick and easy, they are nationwide with multiple locations close to me (and everywhere else in the US - every state/city), their bill pay is FREE, and their hours of operation are long (early and late), their customer service is stellar, and their lobbies/buildings are fresh, clean, new, and 'pretty.'  HAHA.

I am staying with my big national bank!  And it is CHEAPER to do so!

People like us would no more pay for fees at a big bank than we would at a credit union so I don't care if a credit union charges me a few bucks less to bounce a check because guess what, I don't bounce checks!  HAHA.

So, back to Vanguard vs. Fidelity.  I don't know what to do!  I like Fidelity - easy to use.  Vanguard is founded on a better culture but I've never felt a good vibe from THEM.  I've felt a good vibe from you all about them but not from them directly.

[mathjak107]

if you want to index vanguard is fine . if you want a full service account with lots of options and features then go fidelity .

i like fidelity better  and use their features more ,  so i do 90% with fidelity and 10% with vanguard

[EricL]

Oh wow!  It is hard to know what to do!

I like the credit union analogy.  I almost switched to a credit union from a big bank.  I decided against it.  The credit union may be 'better' in terms of the principles it is founded on, but their locations are hard to get too, they feel 'small' and 'dumpy,' have short hours of operations, and their bill pay was operated out of a clunky website and required you to use certain accounts and/or be charged for it!

Whereas, my big evil bank, may be founded on a 'not so wholesome culture / for profit' but their website is slick and easy, they are nationwide with multiple locations close to me (and everywhere else in the US - every state/city), their bill pay is FREE, and their hours of operation are long (early and late), their customer service is stellar, and their lobbies/buildings are fresh, clean, new, and 'pretty.'  HAHA.

I am staying with my big national bank!  And it is CHEAPER to do so!

People like us would no more pay for fees at a big bank than we would at a credit union so I don't care if a credit union charges me a few bucks less to bounce a check because guess what, I don't bounce checks!  HAHA.

So, back to Vanguard vs. Fidelity.  I don't know what to do!  I like Fidelity - easy to use.  Vanguard is founded on a better culture but I've never felt a good vibe from THEM.  I've felt a good vibe from you all about them but not from them directly.

I'm pretty happy with subjective data on a lot of things. But with my money I'll take hard numbers over a "good vibe". I can balance my chakras with crystals if I want a "good vibe".

[Telecaster]

Exactly this. We see this everywhere in the financial industry. Credit cards, CDs, savings accounts...etc. The best deals never last long when they aren't profitable (or even when they are). When breaking the lock-in 10-20-30 years from now results in a 30%+ penalty on your entire life-savings (or at least an appreciable amount of your life-savings), when you're in the middle of long-term FIRE attempt......it just seems silly to subject yourself to that risk for a prettier website the few times a year you need to login.

I have had accounts at both Fidelity and Vanguard for 15+ years.   Fidelity is now cheaper than Vanguard for some things, but some of their funds have been as cheap as Vanguard's for a long time.    Fidelity is more geared to appeal to the active trader (fancey app, screening tools, etc), but there's no bait and switch.  Customer service is a bit better at Fidelity.  Otherwise, there's very little difference. 

[forummm]

credit unions unlike banks pay no income taxes  on profits  .  that is why they can pay out more in interest . they actually have an unfair advantage over banks because their  structure allows it .

I would bet that the banks don't actually pay much if any tax on their retail borrowing and lending activities. They are pretty good at creating and using tax loopholes. What tax they do pay is probably from the various side businesses they run (trading, investment banking, brokerage, etc), which is also where their profit comes from (for the large banks).

[mathjak107]

can't say , and i won't comment about a banks taxes

[MidWestLove]

Couple of things missed here
1. Did Fidelity actually fixed expense ratios to be lower than Vanguard or does it continues to be the gimmicks and games of 'temporary management rebates' and other BS indicating in plain language that they have not actually changed anything , they are just eating the revenue to be competitive. I have problems with that approach as dishonest, if you want to get your ER to specific amount, please set it to specific amount  -  do not use the temporary rebate or other double speak.

2. the cost of switching is very high and they know (which is exactly why they are doing it). if you have Fidelity funds that accumulated gains to move that into Vanguard funds  (not Vanguard as custodian which could be ACAT'ed into) you have to take gains, in my example in one of the funds I would have to take over 100K of gains which is significant taxes. Fidelity is not stupid and moving from them is not 'two weeks and couple of forms'.

Other than that Fidelity has great product, excellent and knowledgeable customer service eager to exceed your expectations, and we continue to do business with them and keep over 500K of assets for my family.

[MidWestLove]

Went to Fidelity web site for FUSVX fund - they are still playing games with ERs. Here is the page directly from their prospectus pulled off their site few seconds ago. cost for Investor class shares is 0.1 and for Advantage Class 0.07, they rebate small amounts to keep themselves competitive


Investor Class 
Fidelity AdvantageŽ Class 
Management fee 
0.025% 
0.025% 
Distribution and/or Service (12b-1) fees 
None 
None 
Other expenses 
0.075% 
0.045% 
Total annual operating expenses 
0.100% 
0.070% 
Fee waiver and/or expense reimbursement(a) 
0.005% 
0.020% 
Total annual operating expenses after fee waiver and/or expense reimbursement 
0.095% 
0.050% 

[mathjak107]

when the day comes i have to be so concerned about a tiny fraction i will give up investing .  guaranteed there is far more money given away from not the best timing for buying , adding money , rebalancing ,tax structure and sell points .

even the portfolio allocation will effect things more . in the scheme of things it is all about the total portfolio performance and how it plays nice with both the other assets as well as what is happening around you in the big picture

[neo von retorch]

I like the credit union analogy.  I almost switched to a credit union from a big bank.  I decided against it.  The credit union may be 'better' in terms of the principles it is founded on, but their locations are hard to get too, they feel 'small' and 'dumpy,' have short hours of operations, and their bill pay was operated out of a clunky website and required you to use certain accounts and/or be charged for it!

I just always vote against blind generalizations. My credit union has modern web and mobile tools. I can deposit money through the phone or a vast ATM network. They use secure express courier for the rare occasion that I need a bank check (so I don't even have to get off my couch.) They pay me hundreds of dollars each year in member profit calculated off my mortgage interest (etc.)

I don't think there are losers choosing between Fidelity and Vanguard, but Vanguard is more like the credit union - the members are the most important element.