Fidelity Now Beating Vanguard Fees on Index Funds!

[Lucas]

Did anyone else catch this announcement from Fidelity where they have lowered their index fund fees to beat out Vanguard?

https://www.fidelity.com/mutual-funds/investing-ideas/index-funds

This is great news for me.  Mostly due to inertia from my 401k being managed by fidelity, i hadn't switched over to Vanguard yet, so i am pretty excited about the low fees war going on between vanguard and fidelity!!!  Anyone else excited or skeptical about this move by fidelity?  Also curious if anyone else saw this or if it is being kept low profile to avoid cannibalizing other fees they get?  Thanks. 

[seattlecyclone]

Competition in this area is great for consumers. Would be nice if Vanguard adopted Fidelity's practice here of reporting two significant figures for some of their sub-0.1% expense ratios. When you're already at 0.05% and you report a decrease to 0.04%, does that mean you really went from 0.05% to 0.04%, or is it something more like going from 0.046% to 0.044%?

[Lucas]

Agree.  Although at that level of fees i am not particularly concerned :-)  I guess though a .0005 fee difference on $1M is $500, which is my families food budget for the month.  So i guess i should care more (not that i have that much in one of the funds yet though). 

[EngineerYogi]

Exciting indeed. Fidelity is the broker for my 401k!

[mathjak107]

fees are just another part of the puzzle along with so many other parameters . worrying  just about the lowest fees  fees can be meaningless if you get the other parameters wrong .

as i said in other threads no one gets those index returns .

we all buy in at different points , we add money at different times , we rebalance at different prices , in my own case i use managed funds but use them through their sweet spots and swap some from time to time , even tax structures vary between us .

i always think of the boglehead who pounds the car salesman in to submission for the best price  ,then he  beats up the loan officer for the best terms ,  then  he trades the car in wholesale  for the next one .

in the mean time grandma pays a bit more , has higher finance terms but sells the car privately and ends up ahead . grandma wins in the end .

at the end it is all about the mix of parameters and your own  portfolio . some things  you will get more correct then other things  and in the end  you will get a balance of all those things .

[FrugalShrew]

That's pretty awesome!

[gggggg]

That's cool, competition is good. I'll be sticking with vanguard, as I like their investor-owned approach. My sister uses fidelity, and likes it.

[Lucas]

That's cool, competition is good. I'll be sticking with vanguard, as I like their investor-owned approach. My sister uses fidelity, and likes it.

I agree - the incentive system setup is much better in the long run.  They are effectively driving the prices down at fidelity though which benefits everyone (except maybe the fund managers :-) ). 

[CorpRaider]

Pretty good.  Thinking about using the Vanguard muni index etf in an older relative's fido account though.  Not seeing a comparable Fido offering.

[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. ;)

[Lucas]

Excellent info to be aware of.  Just curious if the historicals you pulled were "with" current expense ratio or with the actual expense ratio from each year.  I believe the fidelity fund just recently reduced their expense ratio, so might be closer than the numbers indicate.  But yes you are correct Fidelity would almost certainly be pocketing lending income directly.