Question for the portfolio experts

[Niko]

I have a question for all of you portfolio experts:

Why does everyone around here seem to recommend/own Vanguard funds? I own a relatively diversified portfolio without any Vanguard Funds. I have looked at them, but Schwab (through whom I maintain my roth) charges a transaction fee for Vanguards, so I have thusfar avoided them. Am I missing something? Should I consider Vanguard notwithstanding any fees that are charged, or should I stick only with funds that do not charge fees? Thanks,

Barry

 

[rmark]

Vanguard index funds are among the lowest cost available. Its hard to beat low cost and low turnover. Buy the direct from Vanguard and avoid the additinal Schwab fees.

 

[ats5g]

I have a question for all of you portfolio experts: 

Why does everyone around here seem to recommend/own Vanguard funds?  I own a relatively diversified portfolio without any Vanguard Funds.   I have looked at them, but Schwab (through whom I maintain my roth) charges a transaction fee for Vanguards, so I have thusfar avoided them.  Am I missing something?  Should I consider Vanguard notwithstanding any fees that are charged, or should I stick only with funds that do not charge fees?  Thanks,

Barry

Hi Barry,

I like Vanguard because of its ownership structure [owned by underlying mutual funds instead of outside shareholders], because Vanguard has among the lowest cost mutual funds in the industry, and because I don't have to pay any extra fees if I buy funds directly from them in my IRA. I'd also have no problem owning funds from Dodge and Cox or T. Rowe Price, but I'm more of an index person and I like to keep all of my money that isn't in the 401(k) at one place for ease.

- Alec

 

[Niko]

Thanks for the tips. A follow-up Q: As far as my Schwab IRA -- which charges extra fees for Vanguards -- should I simply find the best funds at the lowest cost that do not charge fees, or should I consider transfering my IRA to an institution that allows me to buy Vanguards for free? With the exception of their annual fee, I've been happy with Schwab thus far. Thanks, Barry.

 

[wildcat]

Barry -

I think the point we are trying to get across that index funds should be a vital part of one's portfolio and high expense ratios are to be avoided. Vanguard is the king of index funds and most people can get everything they need in a portfolio there. So if Schwab has some good diverse index funds then by all means should you consider if you do not have to pay any additional fees. However, make sure you carefully compare the index funds. Not all are created equal.

If you decide you want Vanguard as your place to do business then you can always change the IRA account from Schwab to Vanguard with a little work but it isn't too difficult.

 

[Ed_The_Gypsy]

Barry,

You don't have to look for an institution that will hold Vanguard funds for free--Vanguard will do it for you. You can do it all directly with Vanguard and manage your accounts on-line. I switched everything in my IRA and my Roth IRA from Schwab directly to Vanguard a few years ago. I have about 6 Vanguard funds and one non-Vanguard fund all in my IRA at Vanguard. EZ. I could even buy stocks if I wanted (although last time I looked, Vanguard's brokerage fees were not the lowest). (I have proved to myself that I should not be buying individual stocks, so this is OK.) One thing to bear in mind is that Vanguard calls each fund you own there an account, which confused the heck out of me for a while.

Ed

 

[preben]

In my case I can not buy directly from any US based fund companies (US non-resident alien! Star Wars theme please! ) but some US based online brokers will let me do that so I have all with 1 broker.

I must admit that even IF I could own directly with Vanguard, I also want to own other stuff - so I might no matter what have chosen to go via a broker - despite the commission to buy funds. Unless you want to dollar/cost average with small amounts monthly the commissions are well spend for a good overview and the access to any funds you believe belong in your portfolio (for Vanguard I miss: commodities futures(PCRIX), International small cap value, foreign Real estate, foreign developed bonds, emerging market bonds Etc.). Cheers!

 

[brewer12345]

Barry:

I am a chwab customer and have been very happy with them. However, I don't generally own open end index funds. I am mostly a stock picker. When I do wanr cheap index funds, I just buy the equivalent ETF via Schwab. ETFs are really cheap, and I don't have the hassle of dealing with Vanguard and Schwab. Since I am happy with everything else Schwab does for me, this is a minor deal for me.

 

[dex]

In my case I can not buy directly from any US based fund companies (US non-resident alien! Star Wars theme please! ) but some US based online brokers will let me do that so I have all with 1 broker.

I must admit that even IF I could own directly with Vanguard, I also want to own other stuff - so I might no matter what have chosen to go via a broker - despite the commission to buy funds. Unless you want to dollar/cost average with small amounts monthly the commissions are well spend for a good overview and the access to any funds you believe belong in your portfolio (for Vanguard I miss: commodities futures(PCRIX), International small cap value, foreign Real estate, foreign developed bonds, emerging market bonds Etc.). Cheers!

I think you can invest with Vanguard internationally by:
http://global.vanguard.com/

Let me know what you think

 

[preben]

100k minimums/high fees what is not to like ?
No thanks. Cheers!

 

[Texas Proud]

Barry,

You are paying a 'fee' no matter which fund you have....

Most of the other funds have a 12-b1 fee that pays Schwab, so their expense ratio is higher than Vanguard.

Vanguard will not pay this fee, so you must pay Schwab yourself....

Either way, Schwab makes money if you use them for any fund.

 

[Ed_The_Gypsy]

Ben,

Vanguard also has a brokerage function that I use to buy non-Vanguard funds.

However, if you is a dam furriner livin' outside The Country ( ), your choices are more limited.

I do hope that US citizens living outside the US are/will still be able to use our Vanguard accounts from our palapas on the beach in Mexico.

Salud,

Ed

 

[preben]

Ed you are right of course - heard that the commissions are a bit high w. Vanguard brokerage for other funds though. Cheers!

Ben,

Vanguard also has a brokerage function that I use to buy non-Vanguard funds.

However, if you is a dam furriner livin' outside The Country (    ), your choices are more limited. 

I do hope that US citizens living outside the US are/will still be able to use our Vanguard accounts from our palapas on the beach in Mexico.

Salud,

Ed

 

[Ed_The_Gypsy]

Ben,

Yes, I found Vanguard's brokerage fees a bit high myself. Since I do not trade (Schwab and Ameritrade before them didn't like me very much), though, and haven't rebalanced for a couple of years, it does not affect me much. By the way, not rebalancing hasn't made much difference. ALL my assets have been rising pretty much together. This makes me real nervous. Blasted global economy.

Ed

 

[preben]

He,he - yes if they can all go up together they can also all go DOWN together...dammit....

In this kind of market re-balancing will probably not do much of a difference as main value is when the original allocation (fitting ones risk tolerance) gets heavily out of whack which generally means that some assets have been heading south with others heading north.

Personally I am trying to decide on my own re-balancing rules. Not so much in order to try to increase returns (the re-balancing bonus) but rather to reduce volatility/risk. (and to have something sensible to do? ).

Cheers!

 

[brewer12345]

I think that the trend of serially increasing asset class corrrelations over time makes it a lot tougher to get the "free ride" from diversification and rebalancing than in past decades. I still do international equities (EAFE), but clearly the diversification benefit is declining, especially in times of capital markets stress. I think the only alternative is to keep searching out low correlation asset classes. Foreign bonds, EM equity and commodities still appear pretty useful, but no doubt over time they will become less so. Barring these asset classes, I guess TIPS and I bonds work too, but you definately give up a lot of potential return to get the reduction in volatility.

 

[wildcat]

but clearly the diversification benefit is declining, especially in times of capital markets stress.

Yeah I read a little study not too long ago about US and Intl markets. During big drops in the US market the Intl seemed to do worse. Intl markets seemed to make uncorrelated moves when the US market is moving sideways.

One thing I am looking at is timber. Historical data supports its case. Hard to find plays on that one. But I am running some numbers on PCL (one of the big players in that area). It is structered as a REIT so I am checking the correlation between the S&P, REIT index and PCL to see if it really just moves with the REIT index. Also caught some buzz from Barclays. It is thinking about introducing some commoditiy linked ETFs and timber may be one. However the fees will prb be much higher.