Author Topic: Help with bond funds  (Read 6175 times)

spokey doke

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Help with bond funds
« on: April 09, 2015, 08:55:10 AM »
Greetings all,

In a house-keeping review of my portfolio, I was looking at my bond funds held in my taxable Fidelity account.  Currently (following my Fidelity Repís advice) I have my bond investments in tax free short and mid-term bond funds, split between SIMBX and STSMX, and have also had recommended to me the Fidelity analogs of FLTMX and FSTFX.

SoÖone of the few criteria that I know how to apply with understanding is expense ratios, and the funds above are:

SIMBX: .73
STSMX: .63
FLTMX: .37
FSTFX: .48

Going over to check at Vanguard, we see:

VWSTX: .20
VMLTX: .20

My apologies for asking others to do some legwork, but if any of you that get into this stuff and donít mind poking around, any reasons not to switch over to Vanguard funds?

These are a pretty decent chunk of my portfolio and my primary bond holdings (again in my taxable account).

Thanks!
« Last Edit: April 09, 2015, 09:04:27 AM by spokey doke »

forummm

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Re: Help with bond funds
« Reply #1 on: April 09, 2015, 09:41:51 AM »
Greetings all,

In a house-keeping review of my portfolio, I was looking at my bond funds held in my taxable Fidelity account.  Currently (following my Fidelity Repís advice) I have my bond investments in tax free short and mid-term bond funds, split between SIMBX and STSMX, and have also had recommended to me the Fidelity analogs of FLTMX and FSTFX.

SoÖone of the few criteria that I know how to apply with understanding is expense ratios, and the funds above are:

SIMBX: .73
STSMX: .63
FLTMX: .37
FSTFX: .48

Going over to check at Vanguard, we see:

VWSTX: .20
VMLTX: .20

My apologies for asking others to do some legwork, but if any of you that get into this stuff and donít mind poking around, any reasons not to switch over to Vanguard funds?

These are a pretty decent chunk of my portfolio and my primary bond holdings (again in my taxable account).

Thanks!

Those ERs are a pretty high percentage of the yield you are getting on the underlying bonds. I don't see any reason not to switch other than possible capital gains taxes or fees due on selling (I didn't do any legwork). But on bond funds those are generally not very much. Vanguard has a ton of bond fund varieties, so you could replicate whatever these funds are, but with lower fees.

Wolf359

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Re: Help with bond funds
« Reply #2 on: April 09, 2015, 10:13:53 AM »
Greetings all,

In a house-keeping review of my portfolio, I was looking at my bond funds held in my taxable Fidelity account.  Currently (following my Fidelity Repís advice) I have my bond investments in tax free short and mid-term bond funds, split between SIMBX and STSMX, and have also had recommended to me the Fidelity analogs of FLTMX and FSTFX.

SoÖone of the few criteria that I know how to apply with understanding is expense ratios, and the funds above are:

SIMBX: .73
STSMX: .63
FLTMX: .37
FSTFX: .48

Going over to check at Vanguard, we see:

VWSTX: .20
VMLTX: .20

My apologies for asking others to do some legwork, but if any of you that get into this stuff and donít mind poking around, any reasons not to switch over to Vanguard funds?

These are a pretty decent chunk of my portfolio and my primary bond holdings (again in my taxable account).

Thanks!

Those ERs are a pretty high percentage of the yield you are getting on the underlying bonds. I don't see any reason not to switch other than possible capital gains taxes or fees due on selling (I didn't do any legwork). But on bond funds those are generally not very much. Vanguard has a ton of bond fund varieties, so you could replicate whatever these funds are, but with lower fees.

Looking up SIMBX alone, it's yield is 2.21%.  You're paying them .73% for that yield.  That's about a third of your return.  Ouch.

spokey doke

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Re: Help with bond funds
« Reply #3 on: April 11, 2015, 08:26:54 AM »
So I ran this by my Fidelity rep., and he said he's all in favor of getting into a lower exp. ratio fund, but I'm currently looking at incurring a chunk of capital gains if I sell the SIMBX (not so much on STSMX).  He also mentioned a fee to buy into the Vanguard funds.  I think I will switch from the STSMX over to the short term Vanguard fund, and use that for additional bond fund investment in that account.

I wish he had the expenses more clearly in mind before (and that I did a better job of policing those moves - face punch!)

humblefi

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Re: Help with bond funds
« Reply #4 on: April 11, 2015, 10:26:50 AM »
As Wolf359 points out, losing 1/3 of your yield is no joke. So, it is great that you are thinking about solving the expense issue...that is the first step! Best of luck.
Here is one way to think about this.

1. Stop putting more money into your current bond funds, esp the two most expensive.
2. Start putting the money in your new bond funds....you may also want to take a peek at VWITX.
    If you do not have new capital, you can stop dividend reinvesting and put the dividend money into the new funds.
3. Take the two highest expense ratio funds and slowly sell small amounts (keep taxable income low) and move it to the Vanguard funds. This will keep your tax load low.
    Make sure you keep the tax slab in mind too....if you are $10000 below the next tax slab, then you can sell enough to realize $10000 worth of gains....ofcourse, you
    have to pay the tax man some...
4. Another optimization you can do is to keep the lowest capital gains funds...once interest rates start rising, bond funds will fall, and then you can play the tax loss 
    harvesting game...sell one fund for a gain, one fund for a loss and balance it out.

NOTE:
Consider VCADX which I use. The current price is $11.82 appx. This is almost close to the highest price in the last few years.
Even if I had a chunk of money, it would probably be better to slowly dollar cost average into this fund. Else, I may be holding a loss for a couple years.
So, it makes sense to slowly DCA anyways....so, I would move off the Fidelity funds to Vanguard funds slowly.

And, I have seen appx 50-60 Vanguard funds and I have not seen a Vanguard fund with a front load option i.e. no fee upfront. Ask your Fidelity rep what funds he was talking about...maybe it is just a pressure tactic to keep you in Fidelity.

forummm

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Re: Help with bond funds
« Reply #5 on: April 11, 2015, 10:37:34 AM »
So I ran this by my Fidelity rep., and he said he's all in favor of getting into a lower exp. ratio fund, but I'm currently looking at incurring a chunk of capital gains if I sell the SIMBX (not so much on STSMX).  He also mentioned a fee to buy into the Vanguard funds.  I think I will switch from the STSMX over to the short term Vanguard fund, and use that for additional bond fund investment in that account.

I wish he had the expenses more clearly in mind before (and that I did a better job of policing those moves - face punch!)

Don't buy the Vanguard funds at Fidelity. Fidelity will charge you those fees the rep mentioned. Instead, move your money to Vanguard and buy the funds there.

He did have the expenses clearly in mind. That's why he sold you the funds that are profitable for Fidelity (and his pocket). But now that you found out about them, he's suddenly "on your side".

It's hard to imagine the capital gains will be all that much. If you've held the fund for a year, they are long term gains, and taxed at a lower rate than your income. If your income will be in the 15% bracket or lower, then the long term gains are taxed at 0%.

http://www.schwab.com/public/schwab/nn/articles/Taxes-Whats-New

But even if you have to pay something in tax to get the lower expense ratio, it is likely to be worth it.

www.bogleheads.org/wiki/Paying_a_tax_cost_to_switch_funds

Frankies Girl

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Re: Help with bond funds
« Reply #6 on: April 11, 2015, 10:51:34 AM »


I get that Vanguard is awesome and the leader in low cost investing... but if you are otherwise happy at Fido, then you'll still be fine staying there as long as you stop buying the high expense/managed funds.

I have my portfolio at Fido, but self manage and I don't rely on any Fido reps to pick my funds for me. There is no need to move things over to Vanguard or buy Vanguard at Fido as long as you use Fido's low cost index Spartan series.

My bond fund is Fidelity Spartan U.S. Bond Index Fund (FSITX), with a gross expense ratio of .17% (cheaper than the Vanguard version actually). This was based off of the Bogleheads Fido equivalents to Vanguard funds, found here:

http://www.bogleheads.org/wiki/Fidelity

Stop reinvesting/purchasing the bonds you currently hold and switch to FSITX, and keep an eye on when your old ones flip to long term and sell off then to purchase the FSITX.

Oh, and you really, really shouldn't be holding tax inefficient funds (like bonds) in a taxable account... so you might want to rethink your accounts and maybe switch over to something like Fidelity Spartan Total Market Index Fund (FSTVX) in your taxable and hold your bond portion in a Roth, 401k or traditional IRA of some kind so you don't take such a huge tax hit.

http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement


spokey doke

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Re: Help with bond funds
« Reply #7 on: April 12, 2015, 07:48:05 AM »
I have my portfolio at Fido, but self manage and I don't rely on any Fido reps to pick my funds for me. There is no need to move things over to Vanguard or buy Vanguard at Fido as long as you use Fido's low cost index Spartan series.

My bond fund is Fidelity Spartan U.S. Bond Index Fund (FSITX), with a gross expense ratio of .17% (cheaper than the Vanguard version actually). This was based off of the Bogleheads Fido equivalents to Vanguard funds, found here:

http://www.bogleheads.org/wiki/Fidelity

Stop reinvesting/purchasing the bonds you currently hold and switch to FSITX, and keep an eye on when your old ones flip to long term and sell off then to purchase the FSITX.

Oh, and you really, really shouldn't be holding tax inefficient funds (like bonds) in a taxable account... so you might want to rethink your accounts and maybe switch over to something like Fidelity Spartan Total Market Index Fund (FSTVX) in your taxable and hold your bond portion in a Roth, 401k or traditional IRA of some kind so you don't take such a huge tax hit.


well, I'm talking about tax free municipal bond funds in my taxable account, for which there is no Spartan fund that I can find.

also, there is no load, but a transaction fee of $75 to buy sell the funds I mentioned from Vanguard:

"1. Transaction Fee:

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. However, you will not pay a sales load on Transaction Fee (TF) 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 a 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."
« Last Edit: April 12, 2015, 07:55:47 AM by spokey doke »

forummm

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Re: Help with bond funds
« Reply #8 on: April 12, 2015, 11:13:21 AM »
I have my portfolio at Fido, but self manage and I don't rely on any Fido reps to pick my funds for me. There is no need to move things over to Vanguard or buy Vanguard at Fido as long as you use Fido's low cost index Spartan series.

My bond fund is Fidelity Spartan U.S. Bond Index Fund (FSITX), with a gross expense ratio of .17% (cheaper than the Vanguard version actually). This was based off of the Bogleheads Fido equivalents to Vanguard funds, found here:

http://www.bogleheads.org/wiki/Fidelity

Stop reinvesting/purchasing the bonds you currently hold and switch to FSITX, and keep an eye on when your old ones flip to long term and sell off then to purchase the FSITX.

Oh, and you really, really shouldn't be holding tax inefficient funds (like bonds) in a taxable account... so you might want to rethink your accounts and maybe switch over to something like Fidelity Spartan Total Market Index Fund (FSTVX) in your taxable and hold your bond portion in a Roth, 401k or traditional IRA of some kind so you don't take such a huge tax hit.


well, I'm talking about tax free municipal bond funds in my taxable account, for which there is no Spartan fund that I can find.

also, there is no load, but a transaction fee of $75 to buy sell the funds I mentioned from Vanguard:

"1. Transaction Fee:

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. However, you will not pay a sales load on Transaction Fee (TF) 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 a 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."

I'm confused by what your saying. If you want a Vanguard fund and Fidelity is charging a fee to buy or sell a Vanguard fund, then don't buy it through Fidelity. Just withdraw your money from Fidelity and open an account at Vanguard (it's free if you do online statements) and buy whatever you want for no transaction fee (except a couple funds you don't want to buy anyway).

Scandium

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Re: Help with bond funds
« Reply #9 on: April 13, 2015, 06:51:37 AM »
Also keep in mind that if you have more than $50,000 in muni bonds you can use the admiral shares version (VWSUX) of VWSTX. This drops the ER from 0.20% to 0.12%! The same is true for VMLTX.

The poor and expensive bond fund selection is one of the reasons I moved my taxable account from schwab to vanguard. I only had a few thousand in gains though. If the gains are huge it might be best to just stop contributing into bonds at fidelity and open another account with vanguard. If you have a low income year, or bond funds drop, you could then move this money over. Due to the fees I would not buy vanguard funds through fidelity

spokey doke

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Re: Help with bond funds
« Reply #10 on: April 13, 2015, 07:33:42 AM »
Also keep in mind that if you have more than $50,000 in muni bonds you can use the admiral shares version (VWSUX) of VWSTX. This drops the ER from 0.20% to 0.12%! The same is true for VMLTX.

Now we're talking...thanks

On the SIMBX, the gains are big enough to wait.  I'm going to ask about fees, as they often seem to become more generous when you start talking about leaving (but that isn't much of a long-term solution because it would need to be repeated).