E*Trade Lowers Fees

[Austin_Explorer]

For those of you interested in the S&P 500 or an International Index fund, E*Trade has just lowered their fees to 0.09%.

http://biz.yahoo.com/prnews/040907/sftu123_1.html

The Russell 2000 index fee was lowered to 0.26%.

I just love price wars!

 

[charlie]

It will be interesting to see if Vanguard joins the fight.

Since they have a high percentage of their assets under
management in index funds, it would affect their net
profit more than other providers.

At some point, the convenience of having all your
funds under one roof is worth a few extra $ in expenses,
at least for me that's true.

Cheers,

Charlie

 

[johnblake]

But isn't Vanguard owned by the shareholders of the funds? There are no profits. Any decrease in fees must be offset by lower operating costs.

 

[trumpeting_angel]

Is that true? I didn't know that. Like a credit union of mutual fund companies?

Anne

 

[wabmester]

Vanguard's response is "read the fine print." So I did. The low etrade fees are good until April 30, 2005. Not even a full year. Sheesh.

 

[Cal]

Moving funds can be a hassle. I bet they are banking on people not reading the fine print, moving their money and then either not noticing that the rate has changed or can't be bothered with moving the accounts again after such a short time period.

Also, if these funds are outside of a retirement vehicle, would "selling" the one index and moving it to E*Trade cause you to recognize cap gains?

 

[johnblake]

But isn't Vanguard owned by the shareholders of the funds? There are no profits. Any decrease in fees must be offset by lower operating costs.

Is that true? I didn't know that. Like a credit union of mutual fund companies?

Anne

Hello Anne,

Vanguard's structure is unique among mutual fund companies. That's how they can offer such low fees. It's also why John Bogle is often standing alone criticizing the financial industry and 'corporate America.'

www.vanguard.com/web/corpcontent/CorpAboutVanguardWhyInvestHere.html

or go to www.vanguard.com and click on 'About Vanguard'.

It's still not clear to me how transparent the business is.

--John

 

[trumpeting_angel]

Wow, I've owned Vanguard index funds for years and never knew that. Found out how cheap they were and never looked back!

Thanks, John, that's great to know. Cutting out layers of bureaucracy and layers of profit-takers seems would inevitably lead to cost savings.

Anne

 

[haha]

 Cutting out layers of bureaucracy and layers of profit-takers seems would inevitably lead to cost savings.

Anne

That is the usual argument for social democracy. I think it is sometimes true-eg British or European health systems vs. ours in the US.

Mikey

 

[notTwain]

I'm a vanguard fan ... but i guess competition should be good.

Fidelity seems to be on board now...

http://yahoo.smartmoney.com/bn/index.cfm?story=20040831014750&afl=yahoo

it's tempting to get the best bang for the buck for index funds that ride time - especially if rebalancing assets (which I am about to do). Is there anyway to transfer ... say an equal type fund S&P 500 indexed from one place to another without incurring possible capital gains in a non-sheltered fund?

My guess is no ... so sad to save maybe some easy (though small) money.

notTwain

 

[cute fuzzy bunny]

Nope...you can transfer stock and fund assets that are identical from one brokerage to another, but these in-house index funds are not identical...hence a taxable event.

Which may not be the worst thing...if your fund is down, you can take the loss and apply it against other gains...which means your new holding will create a higher gain if/when you eventually sell...or if you have a gain and your tax profile is low, you can take a little hit now at a low tax rate and readjust your cost basis in the fund a little higher.

On some of these 'lowered' fees, make sure you read the fine print. Some may be offering these lower rates as a teaser, and move to higher rates a year or so from now.

Also...once you're down below 25 basis points, the cost savings is almost moot unless you're working with many millions in assets. Even there, convenience and service should come to bear before costs.

 

[sgeeeee]

. . .Fidelity seems to be on board now...

It figures. :-/ Because of my job and investment history, I had my investments in a large number of different accounts when I retired just over a year and a half ago. I just finished up consolodating a lot of those funds -- primarily into Vanguard index funds.

I hope Fidelity's move starts a price war so that Vanguard will follow. Otherwise I might be looking at moving everything again before long.

 

[johnblake]

I've used Fidelity in the past and I've found Vanguard to be far superior.

Yes, it looks like Fidelity is out to beat vanguards low management fees on some index funds. But look at the fees for other funds.

Index 500
Vang - .18%
Fidel - .1%

GNMA
Vang - .20%
Fidel - .59%

ST Bond
Vang - .21%
Fidel - .57%

Balanced
Vang Wellington - .36%
Fidel Balanced - .67%

Fidelity will bombard you with literature marketing funds that have higher management fees.

The difference on the Index500 is very small, and on the average Vanguard is still significantly less expensive.

 

[Nords]

Not so fast.

Any bets on when Fidelity's ERs will start sneaking upward again? Perhaps a month after E*Trade's deal expires?