Putting all your equity eggs in Vangard

[Roger_R]

I'm just starting to catch up with some new concerns that I'm discovering here and through some reading that inlcude asset allocation, index funds, and expense fee reduction. It seems like many of you that have this approach select Vangard funds only as the ideal for these. I'm wondering if this might allow a bit of outside risk due to some sort of institutional scandal or failure by not spreading these out over other families of funds. For example it looks to me like Fidelity offers some similar funds with slightly higher expense fees.

Once I started looking over some of my investments with my current full service broker, I was quite surprized. One of the funds have expense fees of 2.0% and a front end load of over 5%. My starting plan is to get these transfered into lower expense index funds and I have a lot of homework to do.

Your thoughts appreciated.

[Whakamole]

If you go with Scottrade, you can own Vanguard funds and any quality funds from other families as well.

[Martha]

I agree with Whakamole. We use Scottrate and find their customer service outstanding as compared to many brokers and their costs are reasonable. Through Scottrade we can buy individual stocks, both foreign and US, can buy mutual funds like Vanguard and others, and can buy bond funds, including foreign bond funds.

Martha

[cute fuzzy bunny]

Flip siding, with vanguards brokerage, you can own most no-load funds without incurring any charges and even the ones they dont directly service are buyable for (I think) a $30 service charge. You can also buy ETF's and any other stock or bond that might be available from another broker.

Vanguard has a pretty squeaky clean image (and likes it that way), and is of a size that makes me pretty comfortable with their long term stability.

The other secondary benefit is that they do a pretty good job with feeding data to quicken, and since now all my eggs are in their basket, I dont even need quicken anymore...I can feed the vanguard data straight from their web site into turbo tax.

I havent used Scottrade, but I used Ameritrade. They made a lot of mistakes I had to correct with them, they did a lousy (and inaccurate) job of reporting data to quicken, and they didnt keep any information on cost basis, so I had to use quicken to feed turbotax.

Roger, if you believe someone like Bernstein who projects a 3-3.5% "real return" from equities and bonds, that fund will be giving you a real return of 1-1.5% annually if measured over a 30 year period. And the 5% front end load eats 4-5 years of those returns right off the bat.

Get yourself a wet fish that feels good in your hand and go find that broker...

[Bob_Smith]

For example it looks to me like Fidelity offers some similar funds with slightly higher expense fees.

Roger, I don't know which funds you are looking at, but keep in mind that the difference between two-tenths of one percent and four-tenths of one percent is $1,500 per year (or $125 per month) on a $750,000 portfolio. So while it may not seem like much, it would actually have fed my family of four for almost four months last year. Or it would have been enough to pay the property taxes & insurance on my home last year. Another way to look at it is that you would need to set aside an extra $37,500 in savings to cover that. Is it worth $37,500? I don't think so. I'm not too concerned about Vanguard's stability.

A two percent expense ratio would be $15,000 per year on a $750,000 portfolio! Your broker has violated your trust, but that's what these salesmen typically do, and you won't find too many here who would be surprised by that. Good luck to you.

[BunsGettingFirm]

I have two Fidelity index funds, the Spartan 500 Index and the Spartan U.S. Equity Index. Both are essentially the same. The U.S. Equity Index and the Spartan 500 used to have a 0.19% and. 0.25% expense ratio, respectively. Now they are both 0.2%. However, Fidelity makes it very clear that the management company, Geode, is temporarily reimbursing the fund to attract more investors. The moment that either fund's expense starts to go up, I'm moving both to Vanguard's 500 Index.

Also, there's nothing at Fidelity like Vanguard's low-cost bond funds. The lowest cost bond fund at Fidelity charges 0.6%. Even Fidelity's money market fund costs 0.4%. I used to have a significant amount of cash sitting in money market funds before I realized how stupid it is to pay someone to buy and sell CDs.

[haha]

I used to have a significant amount of cash sitting in money market funds before I realized how stupid it is to pay someone to buy and sell CDs.

Buns, what do you use now for cash or near cash in your Fidelity Account?

Mikey

[renferme]

Vanguard is great - my 401k is with them. But, I also like Dodge & Cox funds. Their performance is excellent and expenses are low (of course, not as low as Vanguard)
D&C Stock fund and their Balanced Fund have an expense ratio of 0.54%.
5 star funds as rated by Morningstar.

[cute fuzzy bunny]

I've owned dodge and cox balanced, and liked it.

[BunsGettingFirm]

Buns, what do you use now for cash or near cash in your Fidelity Account?

Mikey

I have little to no cash with Fidelity. Transaction leftovers are in Fidelity Cash or Cash Reserves, but I transfer whatever's left to my bank ASAP.

[amt]

It is a good point. Are we taking a risk if we put all our money in Vanguard funds? Who guarantees the safety of these funds? Is there a chance that VG becomes bankrupt and all the money in these mutual funds is lost? Sorry if it is a dumb question.

[Bob_Smith]

amt, the assets are held by a separate custodian. Vanguard staff can't get at them (to steal or whatever). And if Vanguard were to go belly-up, our assets would be safe.

EDIT: If the mutual fund were to go bankrupt, our assets would be safe because the fund doesn't own the securities - we do. The assets must be held in trust by a custodian (such as a bank), and the mutual fund can't touch them. So Vanguard doesn't own the assets, nor do their creditors have any claim to them.

[amt]

Thanks bob

[ESRBob]

Roger;
welcome to the wide world of high finance. Your broker has been leeching off you for years. Stand up and rip the sucker off your back!

As you wake up to the benefits of Vanguard (i've been with them since I was 25 years old and am incredibly loyal like most of us here), you might also want to look at DFA. DFA has similarly low fees, but has index or index-like funds that Vanguard doesn't always have. For example, they can get you micro-cap stocks (CRSP deciles #9 and #10) that are still reasonably priced, as well as international small stocks, international small value, emerging markets value -- that sort of thing -- which will be harder or impossible at Vanguard and important to you if you start to follow the advice of William Bernstein (another favorite of some of us here). Also, Vanguard won't give you international bonds, which Bernstein and others advise you should have for diversification in your bond portfolio. DFA can get you 2yr or 5yr global bond funds at good prices.

you can check out dfa at www.dfaus.com You will need to go through a fee-only advisor to get into them, but once you do, you can get institutional prices on these and other funds through a schwab account your advisor will set up. DFA is basically for institutions only, but they'll sell to individuals using one of their approved advisors.

My DFA guy was able to get some of the Commodity funds (Pimco and Oppenheimer -which normally have loads for individuals) no-load and very low fee at prices normally reserved for the 50-million dollar account crowd. (Commodities is also one of the asset categories the efficient frontier literature pushes as being poorly-correlated with US Stocks and Bonds, and thus attractive for diversifying your portfolio -- reducing risk and/or increasing yield)

good luck, and whatever you do, ax your broker. btw, you can easily check out fees for mutual funds at morningstar.com. What is not shown there is cost of trading shares at the funds -- either in brokerage commissions your fund pays or cost of the bid-ask spread as it trades shares inthe fund. The brokerage commissions can actually be being kicked back to your fund in part through the use of soft dollars, essentially paying fund expenses that are untracked anywhere. These numbers can whack another few percentage of yield off your assets every year, and up to now, nobody knows how to rigorously track those numbers. You can assume, however, that an index fund, a tax-advantaged fund, or a fund with a back-end load designed to discourage hot money will have lower trading costs than a high-turnover active hotmoney fund. Again, the Vanguard and DFA funds are generally well-designed to keep these trading costs low for you, including the backend load Vanguard puts on trades which is actually not a load at all but a help to all of us long term investors to keep our fees even lower.