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Total Market vs component indexes
Old 02-16-2006, 09:29 PM   #1
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Total Market vs component indexes

I've been reading the 4 pillars, coffehouse investor etc.* One of them talks about a very simple portfolio which has just the total market index, and a bond index or treasury directs.*

A more involved portfolio would replace the total stock market fund with its individual components (large caps, large value, small caps, small value etc.)* If all of the (what I'm calling) Component indexes just divide up the total market, what are you gaining?

Also, what is everyone's recommendation on where to do this from.* I'm leaning toward Vanguard, as those are probably going to be the bulk of the index holdings.* What about Fidelity, or Schwab?* No reason to do it with them if I'm going to be almost exclusively in Vanguard funds I presume.*

Am currently using one of the mega bank's FA and keeping ~40% of* portfolio with them currently.* I know, I know, I'm about to pull the trigger.... The good thing is they do give me allocation advice for my entire portfolio, for the cost of their fee on 40% of the portfolio.* Still too high, I know - especially since they do not have me in any index funds.*

Also, does Vanguard have the full suite of financial goodies; debit cards, checking acct etc?* Presume I will be able to easily move funds to and from them electronically.* Currently, with my banker being my broker, it's all in one easily accesible online site.* It is a big plus if I can keep everything consolidated at one or two places.* Cuts down on some of the clutter. Possibly get rid of the bank and do everything with Vanguard. Did that with Schwab a while back. Kind of a pain at times, since they are not actually a bank (getting checks cashed etc.)
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Re: Total Market vs component indexes
Old 02-16-2006, 09:55 PM   #2
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Re: Total Market vs component indexes

Quote:
Originally Posted by getoutearly
Also, does Vanguard have the full suite of financial goodies; debit cards, checking acct etc? Presume I will be able to easily move funds to and from them electronically.
You can write checks on a Vanguard MMkt account, transfer funds electronically to/from your bank, and pay bills electronically. I haven't seen a debit card offered.

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Re: Total Market vs component indexes
Old 02-17-2006, 02:38 AM   #3
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Re: Total Market vs component indexes

I back up what REWahoo said. Vanguard is a great, low cost provider.

And the last thing you want attached to your brokerage account is a debit card, for security reasons. I tear up my Schwab debit card when I receive it. What if there was a lock on the account for fraud reasons -- then you could not get funds until everything was cleared up. I keep two separate accounts outside of brokerages that have debit cards in case one fails to work (it happens ocaissionally for some reason) or if there is fraud on one of them I have a backup. Also, when you travel you need to carry more than one debit card, and you do not want to be doing transactions on an account with a pile of money in it.

Congratulations on moving to a lower cost provider, though, it puts you way ahead of most investors.

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Re: Total Market vs component indexes
Old 02-17-2006, 07:27 AM   #4
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Re: Total Market vs component indexes

Writing checks on a MMF is feasible, but there is a minimum amount per check and a maximum number of checks a month.* That may work for you, but it doesn't work for us.

While we have accounts at Vanguard, we also have a TDWaterhouse brokerage account for ETFs et al. and the associated TDWaterhouse bank account.* Unfortunately, TDW was bought by Ameritrade and it appears that TDW Bank is closing our checking account.* I have had trouble finding a replacement checking account with no fees like the TDW account.*

All those no-fee checking accounts that I have investigated have hidden fees, but Bank of America seems to have the least fees.* And they have a brokerage as well that I am investigating.* They appear to have $5 trades as well, which would be suitable for ETF purchases.

BTW, it is easy to move funds from your checking account to Vanguard via the Vanguard web site.* It takes a day or so.* At TDW, the transaction was instantaneous.* I am hoping that at BofA it is also instantaneous.* * However, if you read the fine print and initiate a ACH transfer from the BofA checking account side, then BofA will charge you a fee.
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Re: Total Market vs component indexes
Old 02-17-2006, 08:10 AM   #5
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Re: Total Market vs component indexes

vanguard has something called vanguard advantage. I dont know a lot about it because i'm happy with the current bank i'm with. It appears to offer unlimited check writing, debit cards, overdraft, bill paying, yada yada yada. No fees for flagship or asset management clients. Probably some small fees for voyager or below status.
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Re: Total Market vs component indexes
Old 02-17-2006, 08:13 AM   #6
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Re: Total Market vs component indexes

Quote:
Originally Posted by LOL!
While we have accounts at Vanguard, we also have a TDWaterhouse brokerage account for ETFs et al. and the associated TDWaterhouse bank account.* Unfortunately, TDW was bought by Ameritrade and it appears that TDW Bank is closing our checking account.* I have had trouble finding a replacement checking account with no fees like the TDW account.*
Take a look at Schwab. If you meet their asset minimums (don't know off hand, but a couple hundred k likely does it), their checking account is free and they even rebate ATM surcharges to you. I've been happy with it, anyway.
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Re: Total Market vs component indexes
Old 02-17-2006, 08:17 AM   #7
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Re: Total Market vs component indexes

Hi getout,

I'll try to answer the first question as the responses so far have dealt with the latter one.

The total market index is mostly large cap, and large cap growth dominates because those tend to be the most highly-priced companies and so they get the largest weighting in a total market index. By contrast, splitting, lets say, equally between large, mid and small cap, one owns an equal slab of all sections of the market. This provides a smooth ride on the yearly returns, which can be handy, but also because smaller companies grow faster than larger ones, you get a higher return long-term. So for a little extra effort buying and rebalancing, you tend to do better. This is even more so if one owns "value" indices.

It is true when some say that TSM you "own the market," but the problem there is that mainly you own the very largest part of the market and not enough of the rest to balance that out. So top heavy. In the UK - where I'm from - we have the same problem: FTSE 100 index has top 100 shares or FTSE All-Share index has total market but still largely comprised of the top 100 shares. Returns aren't much different between them. Now we have access to the FTSE 250 (mid-cap blend) index, which has a very different balance of industry exposure and returns are different and occur in different years to large-cap. Same in the U.S. market.

Petey

Quote:
Originally Posted by getoutearly
I've been reading the 4 pillars, coffehouse investor etc.* One of them talks about a very simple portfolio which has just the total market index, and a bond index or treasury directs.*

A more involved portfolio would replace the total stock market fund with its individual components (large caps, large value, small caps, small value etc.)* If all of the (what I'm calling) Component indexes just divide up the total market, what are you gaining?
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Re: Total Market vs component indexes
Old 02-17-2006, 01:06 PM   #8
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Re: Total Market vs component indexes

We've been happy with Fidelity.

The advantage of "slice & dice" instead of "total stock market" is that you can bias your investments toward small-cap value instead of going with the default large-caps.

But I'm not claiming that one or the other has better returns or is worth the effort. You have to find a mix that suits your "sleep at night" tolerance and there are probably many asset allocations that will get you where you want to go.
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Re: Total Market vs component indexes
Old 02-17-2006, 08:40 PM   #9
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Re: Total Market vs component indexes

Quote:
Originally Posted by brewer12345
Take a look at Schwab.* If you meet their asset minimums (don't know off hand, but a couple hundred k likely does it), their checking account is free and they even rebate ATM surcharges to you.* I've been happy with it, anyway.
Thanks all for the info. Probably a stupid question, but is it any more expensive to buy a Vanguard fund through Schwab than direct at Vanguard? Appreciably different? I've still got some Schwab accounts that I could reactivate. Unfortunately, it seems one of the things that keeps us with the current investment venues is the amount of effort required to set up the new accts to move to. Again, it's that full time job that keeps getting in the way...
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Old 02-17-2006, 10:38 PM   #10
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