Author Topic: which total market fund for fidelity?  (Read 10019 times)

starguru

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which total market fund for fidelity?
« on: March 10, 2015, 02:29:33 PM »
A few months ago I divorced from advisors, and for the stock component of my portfolio started buying ivv, the SP500 index fund.  That's fine and well, but I later realized that ivv doesn't really cover small and midcap.  So, I have some more to invest, and was looking for a funds that get small and midcap.

For Fidelity's total market fund, FSTVX https://fundresearch.fidelity.com/mutual-funds/summary/315911800, the description says

"Normally investing at least 80% of assets in common stocks included in the Dow Jones U.S. Total Stock Market Index, which represents the performance of a broad range of U.S. stocks."

So 80% DJ doesn't seem to me to be "Total Market".  What am I missing?  What are good alternatives?  To get a good mix of large, small, and medium is it better to buy index funds specifically designed for those allocations?

The Beacon

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Re: which total market fund for fidelity?
« Reply #1 on: March 10, 2015, 02:38:02 PM »
A few months ago I divorced from advisors, and for the stock component of my portfolio started buying ivv, the SP500 index fund.  That's fine and well, but I later realized that ivv doesn't really cover small and midcap.  So, I have some more to invest, and was looking for a funds that get small and midcap.

For Fidelity's total market fund, FSTVX https://fundresearch.fidelity.com/mutual-funds/summary/315911800, the description says

"Normally investing at least 80% of assets in common stocks included in the Dow Jones U.S. Total Stock Market Index, which represents the performance of a broad range of U.S. stocks."

So 80% DJ doesn't seem to me to be "Total Market".  What am I missing?  What are good alternatives?  To get a good mix of large, small, and medium is it better to buy index funds specifically designed for those allocations?

FSTVX  and FSTMX are both very good.   Do not try to over analyze it.  If you have more than 10,000.00, go with FSTVX because it is exp ratio is lower.

tj

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Re: which total market fund for fidelity?
« Reply #2 on: March 10, 2015, 03:08:15 PM »
A few months ago I divorced from advisors, and for the stock component of my portfolio started buying ivv, the SP500 index fund.  That's fine and well, but I later realized that ivv doesn't really cover small and midcap.  So, I have some more to invest, and was looking for a funds that get small and midcap.

For Fidelity's total market fund, FSTVX https://fundresearch.fidelity.com/mutual-funds/summary/315911800, the description says

"Normally investing at least 80% of assets in common stocks included in the Dow Jones U.S. Total Stock Market Index, which represents the performance of a broad range of U.S. stocks."

So 80% DJ doesn't seem to me to be "Total Market".  What am I missing?  What are good alternatives?  To get a good mix of large, small, and medium is it better to buy index funds specifically designed for those allocations?

I think that you are confusing the Dow Jones US Total Stock Market Index with the Dow Jones Industrial Average. Completely different indexes.

Not sure why the prospectus only mentions 80% invested in the index, but there must be a good reason for that.

starguru

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Re: which total market fund for fidelity?
« Reply #3 on: March 10, 2015, 03:41:01 PM »
A few months ago I divorced from advisors, and for the stock component of my portfolio started buying ivv, the SP500 index fund.  That's fine and well, but I later realized that ivv doesn't really cover small and midcap.  So, I have some more to invest, and was looking for a funds that get small and midcap.

For Fidelity's total market fund, FSTVX https://fundresearch.fidelity.com/mutual-funds/summary/315911800, the description says

"Normally investing at least 80% of assets in common stocks included in the Dow Jones U.S. Total Stock Market Index, which represents the performance of a broad range of U.S. stocks."

So 80% DJ doesn't seem to me to be "Total Market".  What am I missing?  What are good alternatives?  To get a good mix of large, small, and medium is it better to buy index funds specifically designed for those allocations?

I think that you are confusing the Dow Jones US Total Stock Market Index with the Dow Jones Industrial Average. Completely different indexes.

Not sure why the prospectus only mentions 80% invested in the index, but there must be a good reason for that.

You are totally correct.  I am confusing the two.  But it still appears to be large cap only. 

What happens to the dividends the stocks in the fund generate?  Not just FSTVX, but any of these funds that doesn't appear to pay a dividend when the underlying stocks do. 

skyrefuge

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Re: which total market fund for fidelity?
« Reply #4 on: March 10, 2015, 03:57:56 PM »
You are totally correct.  I am confusing the two.  But it still appears to be large cap only.

No, it covers the total US market, not just large caps. Currently holds 3435  stocks. FSTVX is what you want. S&P 500 funds are essentially historical relics that have been made obsolete by total market funds.

What happens to the dividends the stocks in the fund generate?  Not just FSTVX, but any of these funds that doesn't appear to pay a dividend when the underlying stocks do.

Mutual funds collect the dividends as they are produced by the underlying stocks, and then pay them out to you on a regular basis. It looks like FSTVX pays in April and December. Vanguard's version (VTSAX) pays quarterly.

retireatbirth

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Re: which total market fund for fidelity?
« Reply #5 on: March 10, 2015, 06:43:42 PM »
I have the 500 fund and their extended market fund which covers small and mid caps. Just google fidelity index funds and you'll get a page with all their Spartan funds.

starguru

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Re: which total market fund for fidelity?
« Reply #6 on: March 11, 2015, 06:57:18 AM »
I have the 500 fund and their extended market fund which covers small and mid caps. Just google fidelity index funds and you'll get a page with all their Spartan funds.

Great idea; I see this

https://fundresearch.fidelity.com/mutual-funds/summary/315911883

which seems like a good option.  So wise to do this, or just stick with total market, or doesn't matter over long time period?

starguru

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Re: which total market fund for fidelity?
« Reply #7 on: March 11, 2015, 06:58:18 AM »
You are totally correct.  I am confusing the two.  But it still appears to be large cap only.

No, it covers the total US market, not just large caps. Currently holds 3435  stocks. FSTVX is what you want. S&P 500 funds are essentially historical relics that have been made obsolete by total market funds.

What happens to the dividends the stocks in the fund generate?  Not just FSTVX, but any of these funds that doesn't appear to pay a dividend when the underlying stocks do.

Mutual funds collect the dividends as they are produced by the underlying stocks, and then pay them out to you on a regular basis. It looks like FSTVX pays in April and December. Vanguard's version (VTSAX) pays quarterly.

So you would actively eliminate any SP500 index funds and replace with total market?  Or just going forward, do total market?

Where did you find the info on dividend payments?

skyrefuge

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Re: which total market fund for fidelity?
« Reply #8 on: March 11, 2015, 09:26:47 AM »
So you would actively eliminate any SP500 index funds and replace with total market?  Or just going forward, do total market?

"Extended market" funds exist for one purpose: to allow an investor to construct a total market fund on their own, by pairing it with an S&P500 fund that they are "forced" to hold for some reason. Most commonly it's because a 401(k) would only offer an S&P500 fund and no total market fund, so you would invest in the S&P500 in your 401(k), and then "complete" the total market by investing in the extended market fund in your IRA/taxable account.

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

Since you presumably have freedom, it makes the most sense to just go straight to the total market fund. The only reason to hang onto your existing S&P500 shares is if you want to defer any taxes you would pay on capital gains by selling it now. Given that you've only had the S&P500 fund for "a few months", your tax hit probably wouldn't be very large, so I would prefer the simplicity of having just one total market fund in my account rather than the total market and this vestigial S&P500 fund. But you'll have to weigh that on your own.

Where did you find the info on dividend payments?

https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/315911883  For any fund, click on the "Fees and Distributions" tab to see the dividend history and schedule.

starguru

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Re: which total market fund for fidelity?
« Reply #9 on: March 11, 2015, 03:56:44 PM »
So you would actively eliminate any SP500 index funds and replace with total market?  Or just going forward, do total market?

"Extended market" funds exist for one purpose: to allow an investor to construct a total market fund on their own, by pairing it with an S&P500 fund that they are "forced" to hold for some reason. Most commonly it's because a 401(k) would only offer an S&P500 fund and no total market fund, so you would invest in the S&P500 in your 401(k), and then "complete" the total market by investing in the extended market fund in your IRA/taxable account.

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

Since you presumably have freedom, it makes the most sense to just go straight to the total market fund. The only reason to hang onto your existing S&P500 shares is if you want to defer any taxes you would pay on capital gains by selling it now. Given that you've only had the S&P500 fund for "a few months", your tax hit probably wouldn't be very large, so I would prefer the simplicity of having just one total market fund in my account rather than the total market and this vestigial S&P500 fund. But you'll have to weigh that on your own.

Where did you find the info on dividend payments?

https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/315911883  For any fund, click on the "Fees and Distributions" tab to see the dividend history and schedule.

When I look here
https://fundresearch.fidelity.com/mutual-funds/composition/315911800

it indicates that the total market fund is squarely large cap.

when I look here
https://fundresearch.fidelity.com/mutual-funds/composition/315911883

it indicates the extended market covers small and mid cap.

What am I missing?

skyrefuge

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Re: which total market fund for fidelity?
« Reply #10 on: March 11, 2015, 04:48:25 PM »
When I look here
https://fundresearch.fidelity.com/mutual-funds/composition/315911800

it indicates that the total market fund is squarely large cap.

when I look here
https://fundresearch.fidelity.com/mutual-funds/composition/315911883

it indicates the extended market covers small and mid cap.

What am I missing?

Those Morningstar StyleMap boxes are trying to distill all of the characteristics of a fund into a single point, and they just do a bad job of it.

In both indexes, larger companies are given a larger weight, so it's the biggest companies in the fund that have the most effect on its movement. I guess that's why the boxes imply FSTVX ignores mid- and small-caps, even though it doesn't, and imply FSEVX ignores small-caps, even though it doesn't.

On the same page, you can click on "Prospectus & Reports" and verify that FSTVX tracks the Dow Jones U.S. Total Stock Market Index, while FSEVX tracks the same index, except it removes any companies that are part of the S&P 500. You can then even click on the "Monthly Holdings Report" to verify that FSTVX holds very small companies, like Cartesian Inc., with a market cap of $29.5M.

retireatbirth

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Re: which total market fund for fidelity?
« Reply #11 on: March 11, 2015, 04:56:03 PM »
I have the 500 fund and their extended market fund which covers small and mid caps. Just google fidelity index funds and you'll get a page with all their Spartan funds.

Great idea; I see this

https://fundresearch.fidelity.com/mutual-funds/summary/315911883

which seems like a good option.  So wise to do this, or just stick with total market, or doesn't matter over long time period?

I would disagree with skyrefuge and go with both the 500 and extended market fund for 2 reasons:

1. You can re-balance when the 2 funds performance differs which will add to your returns

2. You don't have to go with Fidelity's allocation of large/mid/small and you get to choose your own. I think small/mid caps are a bit riskier and more valuable in the early stages of FIRE, but as you get closer to FIRE you may want less of them. I think the total market fund is 80/20 large/extended.

For the same reason, I hold both Fidelity's developed index and emerging index rather than the combined ex-US index.

skyrefuge

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Re: which total market fund for fidelity?
« Reply #12 on: March 12, 2015, 10:24:07 AM »
I would disagree with skyrefuge and go with both the 500 and extended market fund for 2 reasons:

1. You can re-balance when the 2 funds performance differs which will add to your returns

Since you expect the extended market index to have higher returns than the S&P 500 index, rebalancing won't add to your returns in the long run, it will subtract from them.

Furthermore, a single total market fund automatically "rebalances", at a much finer-grained level. If a small-cap stock rises in market value, its value in the fund will also rise, and bam, you're "rebalanced" to your allocation goal, which is to match the allocation of the market.

If you invest 80/20 in the two funds because it matches the current market weighting of the two, then any rebalancing you do between them will move you further away from matching the market. If the extended market grows to become 30% of the total market, and you rebalance to 80/20, then you'd actually be underweighting the extended market relative to the total market. Maybe that's what you want, but you need to be aware that's what you'd be doing.

2. You don't have to go with Fidelity's allocation of large/mid/small and you get to choose your own.

It seems weird that someone who is hands-on and detailed enough to chase a small/mid-cap premium would be so crude as to use an "S&P500 fund" and a "Total Market minus S&P500 fund" to execute that chase (rather than an explicit mix of large, mid, and small-cap funds, or a total market fund plus a small-cap fund). Especially since, as discussed before with the Morningstar style boxes, the extended market fund really behaves like a mid-cap fund rather than a small-cap fund, and I've never heard much arguing for a mid-cap premium. I suppose *if* you do believe that allocation tilt will outperform the market weight, it can be a bit cheaper than investing in the 3 individual funds, but a person who believes in that particular allocation is so rare that I would never give that advice to a general audience.
« Last Edit: March 12, 2015, 10:26:20 AM by skyrefuge »