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Vanguard ETFs - hold with Vanguard Brokerage Services?
Old 01-16-2010, 10:30 AM   #1
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Vanguard ETFs - hold with Vanguard Brokerage Services?

Hello all,

I'm looking for some advice about brokerage houses. I currently have some Vanguard ETFs that are held by Vanguard brokerage services. I noticed that they hit me with a $35 annual fee to have the brokerage account (on top of the $25 per transacation fee I paid ). I would rather not pay more fees than I need to (it's sad to give that tax-free money away!). My question is this: is it better to move this somewhere without annual fees? I'm considering Fidelity, after reading reviews about brokerages on the internet. Because these are ETFs, I would still have the option to purchase Vanguard ETFs through my other brokerage and the only fees would be the brokerage fees (granted that I make the minimum contribution to the fund). Also, are there fees associated with moving assets between brokerages?

Thanks for your help!
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Old 01-16-2010, 10:37 AM   #2
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How much money do you have to keep in the account? If you have more than $25,000, then the Wells Fargo PMA relationship is impossible to beat. We have discussed it here many times, so maybe a search can find those old threads.

If you have less than $25K, then you should seriously reconsider your use of ETFs. Vanguard has funds that cost you nothing while you are building up to more than $25,000.
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Old 01-16-2010, 10:47 AM   #3
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I think that you have to have $100,000 at Vanguard before they start waiving yearly fees. I'm nowhere near that - I have around $13,000 in my accounts. I guess I don't have enough in my IRA to have the Wells Fargo PMA account work for me yet. I could reach the limit if I moved my savings over, but I think I make more in the long run with a high yield savings account as opposed to waving the brokerage fees.
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Old 01-16-2010, 11:45 AM   #4
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You are mistaken about the fees at Vanguard. You just need to use their mutual funds and sign up for online/electronic delivery of documents. Then the fees are $0. That should be clear from their web site. So do not use ETFs at Vanguard. Use their mutual funds instead.
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Old 01-16-2010, 12:03 PM   #5
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X2 for Wells Fargo PMA if you have the $25K minimum. Really works well and you can hold a range of assets including, I understand, mutual funds in it. ETFs can work as well as mutual funds but you have to construct an appropriate portfolio.
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Old 01-16-2010, 02:21 PM   #6
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Or you could use an online broker such as TDAmeritrade or one of the others...

I know TD does not charge an annual fee as I have a small $5K account there... just brokerage fees for trading...
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Old 01-16-2010, 02:39 PM   #7
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Used the Fidelity brokerage for the 1st time last week. Bought ETFs using the internet connection. $11 per transaction. I am a "silver" customer. Pretty reasonable I think. No fee for a brokerage account as far as I can tell.

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Old 01-16-2010, 04:19 PM   #8
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I hold and trade some Vanguard ETF's in my Schwab account. Seems to work fine. $8.95/trade. No annual fees.

Schwab recently introduced a limited selection of ETF's similar to some of Vanguard's. Competitive ER's. Schwab customers trade them free so you can DCA with no expense issues.
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Old 01-16-2010, 05:34 PM   #9
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Thanks for the great tips. So I should move my Vanguard ETFs out of the Vanguard brokerage services if they're charging me $30/year just to keep the brokerage account (since I bought ETFs). Since they're traded like stocks, I can move them to any brokerage, right? I have an account at TD Ameritrade but will look into Schwab, Fidelity and the others to see what seems to be the best deal for my Roth IRA. I did open an account at Scotttrade but quickly closed it when I realized that they don't do dividend reinvestment!

LOL!, yes I understand that the mutual funds have no fees when you buy them through Vanguard, but I chose ETFs since the expense ratios seem to be much lower (VTI has an expense ratio of 0.09% versus 0.18% for the mutual fund counterpart VTSMX). I guess I missed the fine print that said that said since you need a brokerage account to trade ETFs through Vanguard, they will charge you $30/year (you can see it in their fee FAQ https://personal.vanguard.com/us/hel...eesContent.jsp)

Yakers, maybe I'll just hang tight for a few more years and check out the Wells Fargo deal. I'm not sure why I chose ETFs - I think the Suze Orman book had something to do with that, but they seem to have the lowest expense ratios. Asset allocation can be a problem. I was hoping to diversify by slowly investing in several different types of ETFs.

Mutual funds do seem a bit easier to manage/maintain, but I'm somewhat reluctant to sell my ETFs and move to mutual funds since I invested my money right before the 2008 crash and haven't quite broke even yet. Also, I wonder how the lower maintenance costs will work for me long term. Everything I've read indicates that since I'm younger I should have most of my money in stocks since they generally produce higher returns.
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Old 01-16-2010, 05:53 PM   #10
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Quote:
Originally Posted by nerdlet View Post
...but I chose ETFs since the expense ratios seem to be much lower (VTI has an expense ratio of 0.09% versus 0.18% for the mutual fund counterpart VTSMX).
ETFs have other costs to you that the funds do not.
1. Commissions (unless you use WellsFargo or other free broker)
2. Bid/ask spreads of 1 to 4 cents for highly liquid ETFs and more for less liquid ones.
3. The premium/discount to NAV.
4. Dividend re-investment does not happen at the NAV either.

If you at the difference you showed 0.18% - 0.09% = 0.09%, at $30 a year (and thus no trades) for a VBS account you would need $30.00 / 0.0009 = $33,333 before the ETF expense ratio was cheaper for you.

In essence, you have been fooled.

Quote:
Mutual funds do seem a bit easier to manage/maintain, but I'm somewhat reluctant to sell my ETFs and move to mutual funds since I invested my money right before the 2008 crash and haven't quite broke even yet.
This attitude doesn't make sense at all for a couple of reasons. First, if this is a taxable account, if you sell at a loss you get a tax deduction. Second, if you don't sell and wait for recovery, then the mutual fund you would buy is going to be exactly the same amount higher in price as well. If you make the switch now, you will buy the replacement mutual fund at a corresponding lower price as well.

You have fallen into the behavioral finance trap of "loss aversion". That is not good.

Just sell now, use mutual funds*. From the info you posted it was a mistake to get into ETF in your case. Fix your mistake now before it costs you more money.

*Be sure to avoid the wash sale rule if you can.
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