So much for ER in 2010... (longish)

[FinanceDude]

1.8% is just the start of the true cost.  Front end and back end loads (if applicable).  Bid/Ask Spreads.  Market Impact costs.  Trading commissions.  All the costs add up quickly. 

Those costs occur at Vanguard too...............it's not like they get trades for free and the load funds have to pay...............

 

[brewer12345]

Those costs occur at Vanguard too...............it's not like they get trades for free and the load funds have to pay...............

Yeah, but index funds typically trade a LOT less than actively managed load funds. That means there is a lot less to pay in commissions and bid-ask spreads.

Careful, your bias is showing.

 

[MasterBlaster]

The other thing is that many funds have a kickback type arrangement with trading costs and spreads. Yes Vanguard has costs but they don't ream their shareholders in hidden and undisclosed (extra) costs.

 

[justin]

Those costs occur at Vanguard too...............it's not like they get trades for free and the load funds have to pay...............

I'd prefer costs due to bid/ask spreads, market impact costs, and trading commissions on 10-15% turnover per year in a vanguard index fund versus triple digit% turnover in a lot of the funds the OP mentioned. That is, if my goal is to save more money for myself and pay less money to the specialists, market makers, and brokerages. Some people just like paying more for less, though. So to each their own.

 

[TromboneAl]

Another vote for getting to lower cost funds.

Could we save more than 30% of our gross?

If you haven't yet become a frugalista, you could probably learn to save a lot more with no pain. With the help of this forum and The Tightwad Gazette, we now spend about $30K per year less than we used to, and don't miss the stuff we gave up.

 

[FinanceDude]

What bias? I have index funds myself.......

NO ONE really KNOWS what the trading costs are, because mutual fund companies ARE NOT required under SEC law to report them. I think WE ALL would be surprised at the true "costs" of mutual funds..............

Best objective resource I have come across is: www.fundalarm.com They have been around for 10 years, are run by a funny CPA (not many of those around), and his monthly highlights and commentary are hilarious...........he's a pretty big fan of no-loads.........

 

[peggy]

Sorry for the delay in responding to suggestions, but RL has, as usual, interfered. Between DH sitting on a jury and our broker being on vacation, I've only just gotten more info.

First, AG Edwards has a $40 per year fee on IRA accounts (we have two regular IRA accounts with them and two ROTH IRA accounts, so $160 per year total), but no other brokerage fees.

Second, we've made an appointment with the broker for next Friday (damn jury duty, delaying everything), and we are going in with a comparable portfolio set-up from Vanguard (complete with comparison of expense fees and returns from Morningstar), and see what possible justification for remaining in high-fee funds there can be. We have a warped and twisted sense of humor.

Finally, thanks everyone for the suggestions and information. This board is THE resource for early-retirement-minded folks, and though I lurk more than post, I have learned an awful lot from y'all.

I'll let you know what the broker says. Should be amusing.

 

[brewer12345]

peggy, just get ready for a full court press to try to get you to keep you with the vampires.

 

[73ss454]

Peggy,

I was also with AG Edwards. 2 years ago when I started to read this forum and the books that are mentioned here I woke up.

IMHO get your money away from those people as soon as you can. Everything they do is to generate money for themselves.

Everything I have now is with vanguard and I'm a happy camper.
I still have some Oppenheimer and DWS funds that my broker put me in years ago. The only reason I didn't sell them as of yet is because they are in taxable accounts and I don't want to have a taxable event while I'm still working. By next year I will be out of them also.

It does my heart good to know that vanguard and not my broker is getting the 12B1 fees until I sell them.

 

[FinanceDude]

peggy, just get ready for a full court press to try to get you to keep you with the vampires.

I'd bring a cross and a garlic necklace...............

 

[FinanceDude]

Peggy,
It does my heart good to know that vanguard and not my broker is getting the 12B1 fees until I sell them.

Acutally, NO ONE should be getting 12b-1 fees. They were "invented" in 1980 by the fund industry to help the struggling mutual fund industry. The theory was that as the funds grew bigger, they could be elminated because economies of scale would allow it. However, the fund companies have been using it to pay brokers and soft money "donations" to many broker dealers.

Keep in mind companies like Vanguard and Fidelity PAY their 12b-1's to marketplace firms like Schwab and others to get distribution. Just want everyone to know that 12b-1's are a big monster, and unlikely to change anytime soon...........

Although I get some 12b-1 trailers, my shift to a fee-based business has nearly removed 12b-1's from my book..........and I have no problem with that.............

 

[Martha]

I split off the discussion on SOX, ETFs and covered calls and put it in this thread: http://early-retirement.org/forums/index.php?topic=9264.0

 

[FinanceDude]

I split off the discussion on SOX, ETFs and covered calls and put it in this thread: http://early-retirement.org/forums/index.php?topic=9264.0

I think that killed the thread............

 

[saluki9]

Keep in mind companies like Vanguard and Fidelity PAY their 12b-1's to marketplace firms like Schwab and others to get distribution. Just want everyone to know that 12b-1's are a big monster, and unlikely to change anytime soon...........

Just so people don't get confused. Vanguard doesn't have any 12b-1 fees. That is why they aren't a part of any of the fund supermarkets.

 

[FinanceDude]

Just so people don't get confused.  Vanguard doesn't have any 12b-1 fees.  That is why they aren't a part of any of the fund supermarkets.

Good point..........I will say I can buy almost ANY Vanguard fund my client wants, they just have to pay a $50 transaction fee that most clearing firms charge, and I beleive they split it with Vanguard............

 

[segfault]

I'll let you know what the broker says.  Should be amusing.

What'd he say?   

 

[peggy]

What'd he say?   

OOPS! Found out Friday that our dog has to have surgery, and completely forgot about this thread! But, here we go:

The funds with the fees in excess of 2% are "B shares" -- which are no longer offered because some brokerages abused them. After we've held them five years, they change into "A shares" and the fee drops by 1%, which will take them down into the 1.3% range. Still high, but not insanely so.

But rather than pay the 5% back end load on the B shares, DH and I decided to leave them where they are until they mature (two more years, about), and then transfer them to Vanguard. (The A shares won't have a back end load.)

We've been discussing whether to transfer the non-B share investments to Vanguard and just leaving the B shares where they are until they mature. Looking at the big picture, including my paranoia -- do we really want to tip off our broker that we'll be closing our account in two years? -- do y'all have any suggestions or thoughts on this?

On the upside, after the meeting with the broker (and before the vet appointment at which we found out about the surgery), DH asked to see my spreadsheets and projections for the future. It's the first time he's taken such an active interest in the planning, and I'm glad for that.

Thanks, everyone, for suggestions and comments and support.

 

[SaveSome]

NO ONE really KNOWS what the trading costs are, because mutual fund companies ARE NOT required under SEC law to report them. I think WE ALL would be surprised at the true "costs" of mutual funds..............

FinanceDude, commissions are available if you do some digging. A fund's Statement of Additional Information (SAI) shows the commissions a fund (ie. its shareholders) pays in commissions. I'm not sure if it's required by the SEC, but I think it is and most fund's SAIs are available at the fund family's website.

I recently did an analysis of that information for the Vanguard Total Stock Market Index fund and two other random funds to see what I found.

Vanguard Total Stock Market paid brokerage commissions of $6,715,000 during fiscal year ending 12/31/2005 per its SAI. Per the annual report for 2005, TSM had beginning assets of $57,014,134,000 and year-end assets of $65,419,573,000 giving an average asset balance of $61,216,854,000. $6,715,000/$61,216,854,000=.00011 or about 1 basis point (.01%). Thus, a $100,000 investment involves commissions of about $11.

Compare w/ AMRMX, American Mutual Fund, for the year ended October 31, 2005, had average net assests of $15,065,976,000 and paid commissions of $5,738,000 for commisions as percentage of net assets of .0381% or 3.8 basis points. VTSMX shareholders pay less than a third of the brokerage commisions.

T. Rowe Price Science & Technology (PRSCX): fiscal year ended 10/31/2005 brokerage commissions totaled $8,350,000. Assets for year ending 12/21/04=$3,905,000,000. Assets for the year ending 12/31/05=$3,220,000,000/ Average assets = $3,562,000,000/$8,350,000 commissions. Commissions paid by the fund equal .23% (23 basis points) percent of average assets.

The information and calculations aren't perfect, but I found them useful. I'd rather pay 1 basis point in commissions than 10 or 20, that's for sure. Another factor in addition to speads and taxes, etc. that impact returns.

 

[Nords]

FinanceDude, commissions are available if you do some digging. A fund's Statement of Additional Information (SAI) shows the commissions a fund (ie. its shareholders) pays in commissions.  I'm not sure if it's required by the SEC, but I think it is and most fund's SAIs are available at the fund family's website.

Last week I asked T. Rowe Price for a fund prospectus and the SAI. 

It took 10 seconds for the former, but two supervisors for the latter.  When one of them mentioned that it was 210 pages and perhaps I'd rather read it on their website, they couldn't find it on their website.  (Apparently that bluff has worked before.) It's easier to search through the text on a PDF but it's a real pain to skim the document off a monitor.

Nothing's come in the mail yet, but we've already received one "happiness factor" call inquiring about their customer service...

 

[SaveSome]

Last week I asked T. Rowe Price for a fund prospectus and the SAI.

It took 10 seconds for the former, but two supervisors for the latter. When one of them mentioned that it was 210 pages and perhaps I'd rather read it on their website, they couldn't find it on their website. (Apparently that bluff has worked before.) It's easier to search through the text on a PDF but it's a real pain to skim the document off a monitor.

Nothing's come in the mail yet, but we've already received one "happiness factor" call inquiring about their customer service...

I just went to the T. Rowe Price website and found the SAI. Look under the "Products and Services" tab and select "Mutual Funds". In the box appearing on the left select "Stmt of Addl Info".

 

[segfault]

We've been discussing whether to transfer the non-B share investments to Vanguard and just leaving the B shares where they are until they mature. Looking at the big picture, including my paranoia -- do we really want to tip off our broker that we'll be closing our account in two years? -- do y'all have any suggestions or thoughts on this?

Hope your dog is okay.

I would go ahead and transfer everything that I could to Vanguard or another low-cost provider. If your broker catches on, the worst he can do is try to churn what's left of your account to get as much commission as possible out of it, but your brokerage agreement probably says that you still have to approve all trades.

 

[justin]

Peggy,

I beleive you can immediately transfer all your shares "in kind" to Vanguard without selling them. I know I transferred some B shares to Fidelity recently and there was no forced liquidation or expense to me. Then, once all your shares are with VG, decide what you want to do with them. There isn't any reason to wait for the B's to convert to A's. Go ahead and transfer to VG!