Indeex Funds - Vanguard vs Fido ?

[joesxm3]

Most of you seem to like Vanguard index funds. I have been a longtime Fidelity customer.

After reading on this board about the importance of keeping management costs down I decided to reallocate into index funds. I recently took a position in the Fidelity Spartan Total Market Index Fund (FSTMX). They claim that the costs are lower than the Vanguard equivalent.

I am also thinking about getting some of the similar fund that mirrors the SP500.

Does anyone have any comments or care to point out some fine print I may have missed?

 

[mathjak107]

both companies index funds are fine, vanguard just has a bigger selection of index and fidelity a bigger selection of managed .

 

[LOL!]

Why bother with an S&P5 index fund since it totally overlaps with the total market index fund?

 

[NinjaPigeon]

I have an S&P500 index fun, but mainly because I didn't know enough about picking funds when I started this. I saw "large cap" on the vanguard page that lists funds by type, and picked that one. I'd switch, but I don't want to take the capital gains on it just to get into the total market index fund.

 

[Spanky]

Why bother with an S&P5 index fund since it totally overlaps with the total market index fund?

You can slice and dice with S&P500 (mostly large growth) and others (small cap, small cap value, large value). For simplicity, pick total market index.

 

[LOL!]

I'd switch, but I don't want to take the capital gains on it just to get into the total market index fund.

So do not reinvest dividends in the S&P500 index fund, take them in cash and invest in a total market index fund.

I have a few of "legacy" funds as well from my younger days. They all have large unrealized cap gains. If I knew then what I know now ....

 

[al_bundy]

Why bother with an S&P5 index fund since it totally overlaps with the total market index fund?

i've read that small caps have traditionally outperformed large caps over the long term. playing with different funds you can move your money around to bet on different sectors/market capitalizations

 

[Tracy42]

I have been a long-time fan of Vanguard, however, I will be investing at FIDO with after tax funds in order to take advantage of the lower expense ratio on their index funds. You don't get lower expenses at Vanguard generally until you get to 100k in each fund account. I just checked on this and they will not aggregate your accounts to meet that 100K minimum. So, if you have an IRA account that has 100k in the total stock market index and you want to start investing in an after tax account in the same index fund, you get the higher fees on that account until it reaches 100K. Tracy

 

[calmloki]

So do not reinvest dividends in the S&P500 index fund, take them in cash and invest in a total market index fund.

I have a few of "legacy" funds as well from my younger days. They all have large unrealized cap gains. If I knew then what I know now ....

A digression.... If i bought XXX index for $10/share with $3/share unrealized capital gains, held it for 5 years and sold it at $12/share, would i owe capital gains tax on $5 or on $2? Are those unrealized cap gains realized at my sale? The things I don't know!

 

[Nords]

I have a few of "legacy" funds as well from my younger days. They all have large unrealized cap gains. If I knew then what I know now ....

A few percentage points on cap gains can be a lot less than the impact of loads, high ERs, or high turnover/trading expenses.

Especially when cap gains rates drop next year...

 

[NinjaPigeon]

So do not reinvest dividends in the S&P500 index fund, take them in cash and invest in a total market index fund.

I have a few of "legacy" funds as well from my younger days. They all have large unrealized cap gains. If I knew then what I know now ....

Mine are in an after tax account Dividends or not, I'm stuck with capital gains if I switch.

 

[Animorph]

calmloki,

You only pay taxes on your distributions and sales. If you buy into a fund with $3/sh unrealized gains you run a chance they will distribute those gains while you are in the fund. One bad thing that can happen is that you buy the fund just before a dividend or capital gains distribution and suddenly owe taxes on gains you never saw. That does adjust you tax basis, so its not a total loss, but you do want to delay taxes as much as possible.

Dan

 

[LOL!]

Mine are in an after tax account Dividends or not, I'm stuck with capital gains if I switch.

I don't think anybody is recommending a switch. At least I am recommending to not add to such a fund either directly by investing or indirectly by reinvesting. And during a rebalance, you can consider selling some of the "orphan" if needed.

 

[NinjaPigeon]

I don't think anybody is recommending a switch. At least I am recommending to not add to such a fund either directly by investing or indirectly by reinvesting. And during a rebalance, you can consider selling some of the "orphan" if needed.

Ah, that's a pretty good idea. Thanks for clarifying!

 

[frayne]

I have both, FIDO IRA holds three index funds, and Vanguard funds for after tax money.

 

[terminator]

Does anyone have any comments or care to point out some fine print I may have missed?

The Fidelity index funds have low fees. Their fees on the total index, S&P 500, extended market and international are very good (I think all are .1% ER and are marginally less than Vanguard). The only one to "watch" is the 4-in-1 index fund that combines those other index funds and charges a slightly higher ER (.25% I think) -- presumably for the convenience of automatic re-balancing.

 

[Mwsinron]

What bugs me about FIDO is that they do not have a small cap index fund like Vanguard. Otherwise Id say it was a wash.

 

[Spanky]

Just curious - Why do we refer Fidelity Investments as "Fido," the standard nickname for dogs, the most faithful of pets?

 

[joesxm3]

Thanks for the input. I thought that the inbdex fees seemed ok.

One thing I discovered by pestering the fidelity guy was that in additon to the investor class shares they have (if memory serves) advantage class which requires $100k and lowers the cost to .08%.

 

[Spanky]

The Fidelity total market fund (expense ration = 0.07) - advantage fund has the the following requirements:

Minimum Initial Investment $ 100,000
Minimum Retirement $ 100,000
Minimum Additional Investment $ 1,000
Minimum Automatic Account Builder $ 500
Minimum Balance $ 100,000