Comparison of Vanguard, Schwab, and Fidelity Fund and ETF Offerings

Vanguard historically has been the flagship low-cost index provider and offers nearly every imaginable index fund possible, but others are now giving Vanguard a run for its money. So, I thought it would be a good time to list fairly equivalent funds from three of the largest 401k and IRA providers: Vanguard, Schwab, and Fidelity. Note that I am attempting to pick the lowest-cost index fund with no loads and no transaction fees that appear most frequently in lazy portfolios. Schwab, along with their own funds, offers 2,000 choices without any loads or transactions from the OneSource list. (An easier place to navigate a sub-set of those funds is their OneSource Select list). Similarly, Fidelity has No Transaction Fee Funds (NTF) to choose from as well as their low-cost Spartan line of funds.

Comparison of Mutual Funds

Following is a list of fund offerings in table form for easy comparison, listing the ticker symbol, net expense ratio, and minimum investment. (I used the lower share class, but those with a large amount of assets are typically charged a lower expense.) Update 10/6/2010.  Vanguard has reduced the minimum amount required to invest in its Admiral Shares from $100,000 to $10,000, making this share class more available to the majority of individual investors.  Due to this change, I have updated the chart with applicable expense ratios.  I will go in general order from the most commonly held funds to the least, but all are fairly common. Also, I'm choosing the fund I personally would choose to fulfill that particular asset class based on the offerings, but your opinion may differ. If there is an "OR," the first one listed is slightly preferred, in my mind.  Note that due to the competitive pressures, these three brokerage firms now offer a varying degree of commission free ETFs.  These cover a wider array of asset classes, so if you're interested instead in investing in ETFs, skip to the next section.

Note I used Vanguard's admiral share class expense ratio when making this determination, which requires a $10,000 minimum investment.  On the other hand, I used Fidelity's investor class which also requires a $10,000 minimum. Their Advantage class has lower expense ratios, but requires a minimum of $100,000 which is out of range for most investors so I thought I would make it a more fair comparison. While costs and expenses are important, note that all three firms offer some of the best expense ratios available on the market.  One should not fixate or stress out about a tiny difference in expense ratio as long as what you are paying is minimal and near the market leader.

For example, the 0.02% difference between VTSAX (Vanguard Total US Stock Market Admiral) and SWTSX amounts to $2 a year in expenses for every $10,000 invested.  $2/year?!  The tracking error would most likely be a much more significant variable than the $2 difference.  If I had money with Schwab already, I wouldn't hesitate at all to invest in SWTSX.  And many of these track a slightly different index, so that would be of graver concern.  As another example, the fact that VGTSX contains emerging markets, while SWISX is only developed (as indicated in the footnotes) will prove to be more of a predictor of after tax performance than the tiny difference in expenses.  It's certainly not worth the effort to add another brokerage firm in that case.  While previously I've stressed that seemingly small differences in expense ratios compound to significant amounts over the course of several years, that's typically when comparing index funds to active funds, which often have 1%+ expense ratios.   In any event, here's the comparison chart:

"Equivalent" Mutual Funds Offered by Vanguard, Schwab, and Fidelity
Asset Class and Category Vanguard Schwab Fidelity$
Total US Stock Market VTSMX
0.18%@
 0.07%+
$3,000
SWTSX
0.09%
$100
FSTMX
0.10%
$10,000
International Index Fund VGTSX*
0.34%
0.20%`
$3,000
SWISX
0.19%
$100
FSGUX
0.24%
$10,000
Total Bond Market VBMFX
0.22%
0.12%
$3,000
RidgeWorth Intermediate
Bond I -
SAMIX#
0.32%
$2,500
FBIDX
0.22%
$10,000
REIT VGSIX
0.26%
0.13%
$3,000
Cohen & Steers Realty Shares -
CSRSX
1.00%
$10,000
-------
OR SWASX
1.05%
$100
FRXIX
0.26%
$10,000
Inflation-Protected Bond


VIPSX
0.25%

0.12%
$3,000




ACITX
0.49%
$2,500

------- 
OR SWRSX
0.50%
$100
FINPX
0.45%
$2,500
Small-Cap NAESX
0.28%
0.14%
$3,000
SWSSX
0.19%
$100
FSSPX
0.31%
$10,000
Small-Cap Value VISVX
0.28%
$3,000
No good equivalent; use small blend No good equivalent; use small blend
Emerging Markets VEIEX
0.35%
0.22%
$3,000
SFENX
0.61%
$100
FPEMX
0.33%
$10,000
Information is accurate as of 1/21/2010
Updated Fidelity funds 2/12/2012

Notes: 
$ Fidelity Investor Share class (<$10,000 investment) expense ratio is listed; Advantage Share Class (<$100,000 investment)has lower expense ratios is not included.
@Vanguard investor share class (<$10,000 investment) expense ratio is listed first for each asset category
+Vanguard Admiral Share class (>$10,000 investment) expense ratio is listed second for each asset category, if available (note: the ticker symbol for this share class is different than the one listed.  See this page for details.)
*Vanguard's International Fund is the only one the includes Emerging Markets (22%). Schwab and Fidelity's index funds are only developed nations. Thus, a more appropriate comparison would be Developed Markets Index, VDMIX (0.29% ER). However, VGTSX is recommended over VDMIX for a Lazy Portfolio, so it is included instead.
`The Admiral Share Class of Vanguard's Total International Fund is supposed to be available in Q1 2011, unveiled with other changes to the fund, including tracking an index that includes international small-caps as well as Canada and Israel.
#Schwab's own Total Bond Market Index, SWLBX, is not used here for a couple reasons. First, it has a fairly high 0.55% net expense ratio (Schwab's weakness is definitely bond funds). Secondly, looking at the past performance, it clearly wasn't tracking the index it was supposed to (Barclays Capital U.S. Aggregate Bond index.) Take a look at the comparison of SAMIX, VBMFX, and SWLBX in 2008 here. There is certainly some variation between SAMIX and VBMFX, but SWLBX isn't even closely correlated with those two. For the year of 2008, the Schwab bond fund was down nearly 9%, while the other two were up just over 1%. Investigating it further, apparently a law firm is investigating the fund and its managers for "possible misrepresentations, omissions and/or breaches of fiduciary duties" as it was investing in high risk CMOs as opposed to the stated objectives. Certainly, past performance is not indicative of future results, but any fund manager that made that mistake (whether purposefully or not) should not be trusted with your money. Fidelity's diversified total bond fund, FTBFX (ER = 0.45%) also had a disastrous 2008 (for a bond fund), down a whopping 15% at one point (even worse than the Schwab fund!). Thus, it looks like Schwab is in good company and I'd avoid the Fidelity fund as well.

Fund and ETF Comparison

Here's a list of the same funds listed above (investor status; admiral status is cheaper) next to the ETF offerings from Vanguard, Schwab, and Fidelity/iShares with the net expense ratios listed.  I have listed an alternative ETF as well where the choices are slimmer; these will be subject to your standard trading fee.  (Update 5/5/2010: Vanguard Brokerage Service clients can now trade all 43 Vanguard ETFs commission free. This is in addition to the news that Fidelity customers can trade 25 popular iShares ETFs commission free, so your choices are much more widespread now for commission free ETF trading. And Schwab has its own 11 funds to choose from.)  Note that the Schwab ETFs are newer so haven't had the time to acquire as many assets as the others. But for the typical investor, they will serve you well if you have a Schwab account and plan to dollar cost average.  Just be sure to make the purchase with a limit order instead of a market order.  Other firms are more well-established and have historically been popular with traders.  Again, lowest expense offering in yellow.

NOTE: These expenses are only accurate as to when they were last updated and are no longer current as the firms continue to change their expense ratios. Schwab has even further reduced their costs. At this point, the expenses for most of these funds are so low that the tracking error as well as bid/ask spread are of greater concern than any expense ratio. For example, a Schwab fund that has an expense ratio of 0.06% vs. a Vanguard fund that has an expense ratio of 0.09% may not actually be "cheaper" due to a lower trading volume leading to inflated bid/ask spreads. Also, a fund with smaller assets under management or a non-ideal procedure may lag the index they are attempting to match. A total stock market index can have a tracking error of 0.1% or more which dwarfs a 0.03% difference in expense ratio. If the Schwab fund has a historical tracking error that is 0.1% greater than the corresponding Vanguard fund, for example, it may not actually be a better option. I recommend researching historical tracking errors, current bid/ask spreads and trading volumes when making a decision. All three firms have low cost offerings, though, so I wouldn't worry all that much about small differences. The competition on expense ratios has gotten so fierce that they are probably less of concern than the other aforementioned factors.

Index Funds/Commission-Free ETFs Commonly Used in Portfolios
Asset Class
Vangrd Mutual Fund
Vangrd ETF
Schwab ETF
Fidelity/ iShares 
ETF
Altrnate
ETF
Total US Stock Market
VTSMX
.18/.07%
VTI
0.07%
SCHB
0.06%
IWV
0.21%
-
Extended Market
VEXMX
.30/.13%
VXF
0.15%
SCHM
(Mid-Cap)
0.13%
IJH
0.22%
-
Small-Cap
NAESX
.28/.14%
VB
0.17%
SCHA
0.13%
IWM
0.20%
-
Small-Cap Growth
VISGX
0.28%
VBK
0.15%
N/A
IWO
0.25%
-
Small-Cap Value
VISVX
0.28%
VBR
0.15%
SFNFX&
(Small-Mid Mutual Fund)
0.35%
IWN
0.25%
-
Value
VIVAX
.26/.14%
VTV
0.12%
SCHV
0.13%
IWD
0.20%
-
REIT Index
VGSIX
.26/.13%
VNQ
0.12%
SCHH
0.13%
IYR
0.47%
RWR
0.25%
International Index
VGTSX@
.32/.2%
VXUS@
0.20%
75% SCHF/
25% SCHE combo .16%
ACWX
0.34%
-
Developed Markets
VDMIX
0.29%
VEA
0.12%
SCHF
0.13%
EFA
0.35%
-
Emerging Markets
VEIEX
.35/.22%
VWO
0.22%
SCHE
0.25%
EEM
0.69%
-
Pacific Stock
VPACX
.26/.14%
VPL
0.18%
N/A
N/A
EPP&
0.50%
European Stock
VEURX
.26/.14%
VGK
0.18%
N/A
N/A
IEV
0.60%
International Value
VTRIX
0.47%
N/A
SFNNX&
Mutual Fund
0.35%
IDV
0.50%
EFV/DWX
.40/.48%

International Small-Cap
VFSVX
0.55%
VSS
0.33%
SCHC
0.35%
SCZ
0.40%
-
Total Bond
VBMFX
0.22%
BND
0.11%
SCHZ
0.10%
AGG
0.22%
-
Inflation-Prot Securities
VIPSX
.25/.12%
N/A
SCHP
0.14%
TIP
0.20%
IPE
0.19%
High-Yield Corporate
VWEHX
.32/.15%
N/A
N/A
HYG
0.50%
JNK
0.40%
Long-Term Treasury
VUSTX
.25/.12%
N/A
N/A
N/A
TLT/TLH
.15/.15%
Interm-Term Treasury
VFITX
.25/.12%
N/A
SCHR
0.12%
N/A
FIVZ/IEF
.15/.15%
Short-Term Treasury
VFISX
.22/.12%
N/A
SCHO
0.12%
N/A
TUZ/SHY
.09/.15%

Short-Term Index
VBISX
22/.12%
BSV
0.14%
N/A
N/A
CSJ#
0.20%

Information first gathered on 1/21/2010 
Updated 2/2/2010 after Fidelity's introduction of 25 commission-free iShares
Updated 5/2/2010 since Vanguard's 43 ETFs now trade commission-free
Updated 6/22/10 after Schwab reduced the expense ratio for its ETFs
Updated 9/20/10 after Schwab released its bond ETFs
Updated 1/31/11 for Schwab Mid-Cap and REIT ETFs as well as new Vanguard International Admiral Class fund and ETF Share Class 
Updated 2/25/11 after Vanguard reduced ERs on EM, Euro, Pacific, Foreign Small (Announcement)
Updated 7/14/11 for Schwab's Aggregate Bond ETF and updated ERs on BND and AG; updated other Vanguard and iShares ETF ERs 
Updated 2/12/12 for Fidelity's IYR, ACWX, IDV, and HYG.


Note 1: Commission-free only if you have your brokerage account with the provider (certain iShares are listed under "alternate" since not part of the commission-free list) 
Note 2: Vanguard investor share class (<$10,000 investment) expense ratio is listed first for each asset category.  Vanguard Admiral Share class (>$10,000 investment) expense ratio is listed second for each asset category, if available (note: the ticker symbol for this share class is different than the one listed.  See this page for details.)
Important Note 3: As of 5/4/2011, it appears Vanguard increased ER on some of their funds, including VISVX from 0.28% to 0.37%.  However, Vanguard explains: "The expense ratios of some Vanguard funds appear to have increased recently, but appearances can be deceiving. Fund expense ratios now reflect guidance from the Securities and Exchange Commission (SEC) about reporting requirements for funds that hold business development companies (BDCs), not any change in the costs incurred by fund shareholders."  https://personal.vanguard.com/us/insights/article/bdc-expense-ratios-04292011 This applies to 15 of their funds.  Thus, the fees investors pay to the fund hasn't changed at all in actuality.  As I understand it, a new accounting rule by the SEC makes Vanguard state the expenses that are charged by the underlying securities held by the fund and add them to the management expenses.   As of now, I have not adjusted the above, but I will monitor it.  I'm not sure if other fund families have also already adhered to the new SEC standard and are reporting increased expense ratios for some of their funds.
@The Vanguard International fund and ETF are the only ones that also contain small-cap international exposure at the market weight.  The Schwab and Fidelity counterparts are simply large-cap international holdings.  Thus, the Vanguard funds do not need to be supplemented with International Small-Cap, while it would be advisable for the others to do so.  
#Only includes corporates 
&Schwab's Fundamental Index Funds are mutual funds that follow the RAFI index.  While their net expense ratios are competitive, they are subsidized and their gross expense ratios are larger.  SFSNX = 0.53%, SFNNX = 0.61%.  Thus, if you choose to invest, keep an eye out that the expense ratios don't increase as Schwab could pull a bait and switch (keep expenses low to get investors in and then jack them up).  For this reason and the fact that they don't tend to be very tax-efficient, I would be reluctant to invest in these funds in taxable accounts.  In retirement accounts, tax-efficiency doesn't matter and if they pull the bait and switch, you can transfer your shares to another fund without any tax ramifications.  So, it wouldn't be much of a concern in those cases.

Note that Vanguard has a patented fund/ETF structure such that they are simply share classes of one another.  This makes the funds slightly more tax efficient than other fund alternatives since they benefit from the ETF presence.  Additionally, this unique structure allows investors to convert their mutual funds shares to ETFs for free without realizing any capital gains or losses.  The reverse (converting ETF shares to a mutual fund shares) is not possible, though.  This is quite a nice setup for those who prefer the automatic investing schedules or NAV pricing of mutual funds. After a certain amount is accumulated, one can simply convert the shares to ETFs to take advantage of the smaller expense ratio.  And not worry about any taxable event.

If you have a Fidelity account, there are five fixed income funds that have free trading: Barclays Aggregate (AGG), Barclays TIPS (TIP), iBoxx $ Investment Grade Corporate (LQD), JP Morgan USD Emerging Markets (EMB), and S&P National AMT-Free Municipal (MUB). AGG should be the backbone of your bond portfolio with a nice mix of TIP in there, if desired (a 2:1 ratio of these two funds is a common bond portfolio in its entirety). If you really want HY bonds (which rival equities in their volatility), then EMB is a decent proxy for HYG and VWEHX. LQD is a good fund to avoid treasuries, but it also quite risky for a bond fund. MUB is a good choice in taxable accounts for high-income investors.

Schwab and Fidelity Lazy Portfolios

As you can see, there are some good choices and some not so decent ones. Personally, if I were to set up a Lazy Portfolio with Schwab or Fidelity, I'd avoid the expensive funds in favor of the cheaper ones even if it didn't slice and dice as much as I intended. Even better, I'd invest in a cheaper equivalent ETF for those expensive funds (update: especially now with free trades). For example, instead of purchasing Cohen & Steers Realty Shares (CSRSX; 1.00% ER), it'd be a much wiser decision to go with the equivalent ETF, iShares Cohen & Steers Realty Majors (ICF) with its 0.35% ER or Vanguard REIT Index ETF (VNQ) with its 0.11% ER.

Here's a good mutual fund Schwab Lazy Portfolio in my mind (somewhat modeled off of Dr. Bernstein's No Brainer):
US Total Stock (SWTSX) - 25%
International Index (SWISX) - 25%
Intermediate Bond (SAMIX) - 25%
Small-Cap (SWSSX) -25%

And here's an approved Fidelity Lazy Portfolio using only funds:
US Total Stock (FSTMX) - 25%
International Index (FSIIX) - 25%
US Bond Index (FBIDX) - 25%
US Extended Market (FSEMX) - 25%

Again, if you want to add REIT, TIPS, emerging markets, or small-cap value, I'd recommend using ETFs. (Although the Schwab funds aren't terrible if you're investing a small amount since they have only a $100 minimum.) In fact, a lot of investors these days prefer to create the entirety Lazy Portfolio with ETFs. This can make sense depending on your personal circumstances. See this post for more explanation of funds vs. ETFs and consult this Vanguard calculator to compare costs of equivalent funds/ETFs. If you go the ETF route, you clearly cannot invest $100 at a time repeatedly as those commissions that typically range from $7-20 would be prohibitively expensive. ETFs do offer a lot of other advantages over mutual funds, though, such as better tax efficiency, dynamic prices, easier to tax loss harvest, and lower costs in general. Essentially, ETFs are cheaper to own, but they have transaction costs each time you make a purchase.  Update: Again, there are now several ETFs to choose from that have no transaction fees, so this barrier for ETF investing has essentially been struck down.  There still are valid reasons to choose mutual funds over ETFs, though, such as ease of automatic investing, ability to purchase partial shares such that investments are round amounts, buying at the NAV at the end of the day, not having to place a limit order in the middle of the workday, etc.  For those investors with accounts at Vanguard, it might make sense to purchase mutual funds and convert to lower-cost ETFs at a later time if the above reasons make mutual funds more appealing at the onset for you (again, this is due to their patented structure and will not cause you to realize any capital gains).

Update 5/5/2010: For an even more complete picture of these brokerage firms, I thought it might be helpful to add a chart comparing the commission structure, account fees, and minimum amounts. Vanguard joined in on the price war and is now offerings its ETFs commission fee, while also slashing its commission structure, making the brokerage service a viable alternative to Schwab and Fidelity for those who trade more frequently. This clearly is in response to similar moves by Schwab and Fidelity in the past several months.

In summary, it's free for Schwab customers to trade their 11 ETFs (3 bond ETFs were released August 2010), free for Fidelity customers to trade 25 iShares ETFs, and now free for Vanguard customers to trade their 43 ETFs. Also note that I'm purposefully excluding non-transaction free mutual fund purchases as it simply makes no sense to pay a larger transaction fee for a mutual fund when you can most likely get a similar ETF for less. For that matter, there are plenty of transaction free mutual funds to choose from as seen from the above links. (In case you were curious, though, Schwab charges $49.95, Fidelity charges $75, and Vanguard will set you back $35, $20, or $8 depending on your total assets.) While I'm including phone and broker assisted trade fees, you should only be trading online as doing otherwise will cost you unnecessarily (although not with VBS anymore). Vanguard Brokerage Services (VBS) is actually a different account than the Vanguard mutual fund account; that is, you don't need it if you're simply going to invest directly in Vanguard's own mutual funds. In any event, here's a basic chart comparing the commissions as well as account fees and minimums.

Commission Schedule, Account Fees, and Minimums
Vanguard vs. Schwab vs. Fidelity

VBS^Schwab
Fidelity
Online Trades
(<$50,000 in assets)
$7 for first 25; subsequent trades $20 $8.95 $7.95
Online Trades
($50k - $500k in assets)
$7$8.95 $7.95
Online Trades
($500k- $1M in asssets)
$2$8.95 $7.95
Online Trades
(>$1M in assets)
First 25 trades free;
subsequent trades $2
$8.95 $7.95
Automated PhoneSame as online price structure$13.95 $12.95
Broker AssistedSame as online price structure$33.95 $32.95
Account service fee$20 per account if <$50k; No charge if >$50kNo charge* No charge#
Account minimum% $3000 $1000 $2500
Options Trades Online (<$1 M) $30 + $1.50 per options contract $8.95, plus $0.75 per contract $7.95, plus $0.75 per contract
Options Trades Online (>$1 M)$8 + $1.50 per contract$8.95, plus $0.75 per contract $7.95, plus $0.75 per contract
Treasuries$10 or free & No charge No charge
Other Secondary Trades (CDs, Muni Bonds, MBS, etc.)$50 (Mortgage-backed, munis) or free (US gov't agency, corporate, CDs) $1/bond$1/bond
Information is accurate as of 5/05/2010
^ Again, this is specific to Vanguard Brokerage Service. If you simply want to purchase Vanguard mutual funds, this is a different account and has no annual service fee assuming you sign up for e-delivery of documents.
* One exception - Schwab's Personal Defined Benefit Plan account has opening costs
# Fidelity charges a $12 annual mutual fund low balance fee for each noncore Fidelity fund under $2,000
% For most accounts. There may be a few exceptions.
& $10 if total assets are <$100,000. $0 if total assets are >$100,000.

For more information and up-to-date commission schedules, see Vanguard's, Schwab's, and Fidelity's (pdf) own pages.

47 comments:

  1. Thanks very much for writing this blog! I was looking for information regarding Fidelity's comission-free iShares ETF and existing famous Lazy Portfolios. Your blog helped me to build my own lazy portfolio using Fidelity's ETF offerings.

    ReplyDelete
  2. No problem. I'm glad that you found the blog helpful! Good luck!

    ReplyDelete
  3. I am looking to rollover my defined benefit pension into an individual IRA. I am a novice and trying to choose the right firm - Fidelity, Vanguard, T Rowe, etc.? Any suggestions on how to choose? Thanks!

    ReplyDelete
  4. First, I'd suggest you come up with an overall Investment Plan assessing your desired asset allocation based on your time horizon, goals, risk tolerance and the necessity to take on risk. A general guideline (but certainly not a one size fits all) is to take your age in bonds. After determining the stock/bond split, one ought to choose what percentage of equities go into international funds, small-cap, REIT, etc. as well as how to split up the bond assets (TIPS, treasuries, corporate bonds, and so forth). Many experts recommend 20-40% of your total equity holding be foreign, while some prefer a full 50% to more accurately reflect the US market cap. See my Lazy Portfolios post for some possibilities.

    Only after you have a stated plan of what investments and asset classes you plan to hold and in what percentages, can you then assess the needs of that particular IRA. You should think of your portfolio as one large pot - and hold assets as tax-efficiently as possibly in that pot. This generally means equities in taxable accounts and bonds in tax-deferred, but it can be more specific than that. See my Importance of Asset Location post for more information. You should then be able to determine what asset classes you will need to hold in your individual IRA to fulfill both your investment plan and be as tax efficient as possible.

    Finally, assess the offerings of that particular holding for each brokerage. If, for example, you have decided that the individual IRA is the most tax efficient and best place to hold all of your REIT holdings (some people don't even hold any REITs, by the way; this is simply for illustrative purposes), then look at each brokerage firm's offerings in the REITs asset class and compare expenses as well as the index it follows. The other variables and offerings would be irrelevant to you in this case. If it's a lump sum investment that you don't plan to add to, you could easily choose an ETF from another firm without any considerable expense, so the decision may not be as important in that case. All else being equal, I'd choose the firm I already have an account and relationship with, assuming it's been a positive experience. All three of those firms have ample offerings for the low-cost index investor in most asset classes. Good luck!

    ReplyDelete
  5. A truly informative and useful blog.

    Thank you very much!

    ReplyDelete
  6. Hello, due to change of jobs, I am looking to rollover my 401K from old employer to an IRA. I am trying to choose the right firm - Fidelity, Vanguard, T Rowe, etc.?

    This is a very well written article! With lot of detailed data in this article, I'm not sure if I got a sense which firm is suitable for my style. I can be classified as a passive or lazy investor and do not indulge in frequent trading. Accessibility of the account on the internet is definitely required.

    ReplyDelete
  7. Thanks for the kind words. See my comment above responding to essentially the same question. For a passive or lazy investor, any of these firms would be a fine choice in most circumstances. One is not appreciably better than another for your particular style. They all have online accessibility.

    I will say, however, that if placing limit orders on ETFs during the day is not your thing, I'd probably recommend Vanguard. They definitely have the largest offering of low-cost index mutual funds. Mutual funds gives investors the ability to invest a fixed amount (say $500) automatically each month simply by linking it with a bank account. Their auto-investment flexibility is great (better than Schwab, for example, in my experience) and you can invest in partial shares (to make the investments whole dollar amounts) and automatically reinvest dividends. I think going the mutual fund route with Vanguard is the best way to set it and forget it for continual periodic investments. That way, you don't have to worry about bid/ask spreads, placing orders during the day, investing $472.45 one month and then potentially $532.16 the next month since you can only buy whole shares with ETFs, and the like. The mutual fund route still has a simplicity and ease advantage in my mind. And with Vanguard, due to their patented fund-ETF structure, the fund is simply a share class of the ETF so you can easily convert the fund to an ETF at a later date if you so desire (although the opposite conversion is not possible).

    And even if ETFs are your thing, Vanguard offers its own ETFs commission-free as well although the brokerage account will charge you a $20/year fee if you have less than $50k in total assets with them. Not saying Fidelity, Schwab, and T Rowe don't have ample low cost offerings as well. If you already have an account with them and a positive relationship, I wouldn't hesitate to rollover the IRA with them.

    When you do the rollover, just make sure its a "trustee-to-trustee" or "direct" rollover. If you end up withdrawing the funds, you have 60 days from the withdrawal to set up the account or else you'll owe tax to the IRS as the funds are treated as ordinary income. Good luck!

    ReplyDelete
  8. I have moved my portfolio - all ETFs - to Vanguard and am trying to decide in which instances it makes sense to begin to use Vanguard ETFs instead of my existing list which includes many iShares funds. Is there a place where one can find out which Vanguard funds are the equivalent to which iShares Funds. For example, I currently have...IEF
    SHY
    TLT
    EEM
    EFA
    TIP
    ICF
    RWR
    ISI
    IVV
    IWV
    IYY
    SPY

    and would love to find out which Vanguard funds are their equivalent...
    Thanks!

    ReplyDelete
  9. I've listed a few of your requested equivalents in the chart above. For the ones I'm missing, try here:
    https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/aggregateviews?cl=all
    (Make sure to click "Show All Products" at the bottom)

    That lists all the Vanguard products by asset class. Note that Vanguard isn't as strong in its bond ETF offerings - you might have to go the mutual fund route if you want to hold a particular bond asset class at Vanguard. You can also search across fund families based on asset class, expense ratio, etc. at the Free ETF Screener found here:
    http://etfdb.com/screener/

    Prior to swapping from iShares to Vanguard, make sure to consider the tax ramifications (assuming this is a taxable account). Even if the Vanguard fund has a lower expense ratio, it might not be worth it if you have to pay large capital gains taxes. Just something to think about.

    Based on my quick research, below are reasonable equivalents. They are not always identical and often track a different index, but are certainly viable alternatives. Note that if you invest >$10,000 in a Vanguard index mutual fund, you often qualify for Admiral share class, which has a lower expense ratio. I've listed the ticker for investor share class, though.

    iShares ETF = Vanguard (MF/ETF)

    IEF = VFITX (MF)
    SHY = VFISX (MF)
    TLT = VUSTX (MF)
    EEM = VWO (ETF)
    EFA = VEA (ETF)

    You might want to consider the new Global Ex-U.S. ETF, VXUS, instead of VWO and VEA. It holds Developed and Emerging markets at market weight as well as small-caps, unlike other international ETFs.

    TIP = VIPSX (MF)
    ICF = VNQ (ETF)
    RWR = VNQ (ETF)

    Personally, I'd combine ICF and RWR holdings into a single position, VNQ.

    ISI = VTI (ETF) or if you really want equivalent, you could purchase VOO, IVOO, and VIOO in appropriate amounts
    IVV = VOO (ETF)
    IWV = VTHR (ETF)
    IYY = MGC (ETF)
    SPY = VOO (ETF)

    I'd suggest combining the last five holdings into a single VTI holding. There is so much overlap with these five ETFs. I'd prefer to simplify matters, especially since it will make no difference to your performance. Check out a performance comparison chart of those six funds (the five you listed plus VTI) to see what I'm talking about.

    Hope that helps. Good luck!

    ReplyDelete
  10. Thank you so much! Re:bonds I am planning to stick with iShares and add IEI and TLH to fully cover the market. Do you think that makes sense? Thanks for the reminder regarding the tax issue. I have both taxable and non-taxable accounts - try to take my losses in the taxable account and the gains in the non-taxable whenever possible!

    I took these ETFs straight out of David Swensen's book when I first read it - they were his recommends a the time - but it does seem like it might make sense to simplify things.

    Thanks again for all your help.

    ReplyDelete
  11. Okay, so let me get this straight. These are the following bond ETFs you are planning on holding:

    SHY - iShares Lehman 1-3 Year Treasury Bond
    IEI - iShares Lehman 3-7 Yr Treas Bond
    IEF - iShares Lehman 7-10 Yr Treas Bond
    TLH - iShares Barclays 10-20 Yr Treas Bond
    TLT - iShares Barclays 20+ Yr Treas Bond
    TIP - iShares Barclays TIPS Bond Fund

    Check out this post:
    http://www.bogleheads.org/forum/viewtopic.php?p=53058#53058

    Here is Swensen's recommendation verbatim directly from his mouth as seen from that post: "The easiest way to match the market would be to own some of the 1-3 Treasury (70%) and some of the 20+ Treasury (30%) so the weighted average duration matches the market's 5.07 years."

    So, if you want to follow Swensen, I'd hold SHY, TLT, and TIP. No need for the others. Holding IEI, IEF, and TLH doesn't give you any additional diversification or increased potential for returns. It's not as if SHY and TLT are going to go way down while IEI goes up - it doesn't work that way. SHY, TLT, and TIP provide plenty diversification in the treasury market.

    Personally, I'm not a fan of super-long treasuries and I like holding some corporate bonds, but Swensen probably knows more than me about the bond market. I believe Swensen's argument for only treasuries is that you hold bonds in as small a quantity as sensible and thus they should be as high quality as possible; he sees treasuries as the safest choice. If you decide a more diversified bond approach is more suited for you (i.e. not simply treasuries), I'd recommend VBIIX (MF) / BIV (ETF) (Vanguard Intermediate-Term Bond), which holds 58% US treasuries, 20% industrial, 13% finance, 6% foreign, and 4% utilities. Unlike Vanguard Total Bond Market (VBMFX), VBIIX doesn't include any mortgage-backed bonds, which many consider too risky for the "safe" part of their portfolio (and were quite volatile in 2008). So, I see that fund as a good middle ground between the Swensen plan and the Total Bond Market route. I personally prefer the BIV/TIP route over the SHY/TLT/TIP portfolio, but, obviously, you need to do what you find sensible and what you're comfortable with.

    Also note that Swensen made his portfolio recommendations before VNQ or VWO were available. EEM is, to put a bluntly, a rip-off charging 0.72%. All the other iShares ETFs are fairly reasonably priced, though. EEM is just an anomaly for some reason. I'd definitely recommend looking into VWO (0.27% ER) or alternatively a single international ETF like VXUS (0.20%) or VEU (0.25%). I prefer the new VXUS ETF because it includes small-caps, but make sure the trading volume and bid/ask spreads are reasonable before pulling the trigger (although using a limit order should rectify these potential issues of a new ETF).

    All in all, looks like you're on the right path! I think you could simplify matters (as does Swensen in his own words), but besides that, your portfolio is low-cost and diversified and probably better than 95% of portfolios out there.

    A final Swensen portfolio might look something like this (assuming you've decided on 30% bonds):

    30% VTI (US Stocks)
    15% VEA (Developed Markets)
    10% VWO (Emerging Markets)
    15% VNQ (Real Estate)
    15% TIP (US TIPS)
    10% SHY (Short-term Treasuries)
    5% TLT (Long-Term Treasuries)

    (Note that Swensen recently suggested moving 5% of REIT investments to EM, so that's why I have it at 15% VNQ instead of 20%.)

    If I tuned this portfolio to my personal tastes (again, assuming that 30% bonds is appropriate; the stock/bond split is the single most important asset allocation decision), it'd look like this:

    30% VTI (US Stocks)
    25% VXUS (International Market)
    15% VNQ (Real Estate)
    15% TIP (US TIPS)
    15% BIV (Intermediate-Term Bonds)

    You certainly should modify and cater the portfolio to your needs and objectives. I hope that helps. Good luck!

    ReplyDelete
    Replies
    1. Hi investing guy!!!
      Your blog is superb and very clear. I am from Argentina and I'm currently opening an account in Schwab.

      For foreign investors like me, you also recommend ETF's more than funds? (in fact I understand I have less possibilities to buy US funds).

      Do you think a lazy portfolio (thinking in an horizon of 20 years) could be like this (using Schwab equivalences):

      30% VTI (US Stocks)
      25% VXUS (International Market)
      15% VNQ (Real Estate)
      15% TIP (US TIPS)
      15% BIV (Intermediate-Term Bonds)

      thanks very much for your thoughts!!

      Delete
    2. Thanks for the kind words. Usually ETFs are easier to access than mutual funds for foreign investors, so I would say that they are a wise choice. I think your Lazy Portfolio looks good, although it takes a US-centric view and overweights REITs significantly, but that's up to you. It's typically recommended to overweight your own country (Argentina) or at least have some exposure through an Argentina fund (although certainly it's included in total international market).

      Note that Schwab's equivalent ETFs (i.e. there is no single all-in-one international ETF at Schwab) are SCHB (US Stocks), SCHF (International Developed Markets), SCHE (International Emerging Markets), SCHC (International Developed Small Cap), SCHH (REIT), SCHP (US TIPS), and SCHZ (U.S. Aggregate Bond). I'd hold SCHF (developed large), SCHE (emerging large), and SCHC (developed small) in about a 60/25/15 ratio to be approximately market cap.

      Another important note is that you NEED to check the tax laws of investing in US-domiciled ETFs. I believe Argentina and the U.S. do not have a tax treaty and thus you may be subject to 30% tax on dividends from U.S. investments (as part of the FATCA provisions of the HIRE act). I am not a tax accountant in Argentina so don't know the exact laws, but you may want to consider non-US domiciled ETFs that are more expensive if they don't require this excess tax. See this thread for more discussion:
      http://www.bogleheads.org/forum/viewtopic.php?t=53091&start=0&mrr=1270936149

      Hope that helps. Good luck!

      Delete
  12. You have been enormously helpful. I didn't realize when I read the book that Swensen was recommending short-term treasuries. I thought he was recommending covering the entire treasury landscape. Yes, I realized that (belatedly) the Vanguard offering was not available when he wrote the book and am making all new purchases in VWO. I am all over simplifying as long as I don't lose anything in the process. Thanks a million. Truly. You have been so helpful!

    ReplyDelete
  13. This is a GREAT post; nice job gathering all the info. This is very useful.

    ReplyDelete
  14. This is my first time i visit here. I found so many entertaining stuff in your blog, especially its discussion. From the tons of comments on your articles, I guess I am not the only one having all the enjoyment here! Keep up the good work.
    regards:
    Stock Tips

    ReplyDelete
  15. This is a great post with tons of useful info, thanks for putting the time and effort into it. I am moving employers from a public university where i had a 401a to a private company where i will have a 401k. I will only be eligible for the new 401k in january with my new employer. Would it make sense to roll over my existing 401a into a roth ira and continue to make contributions myself until the new 401k kicks in, or should i just leave things as they are for the next 6 months?

    ReplyDelete
  16. Thanks for the compliment. In regards to whether you should roll over your existing 401a into a Roth IRA, leave it alone, or wait and then roll it into your new 401k, this depends on a variety of factors. For now, I'd gather the appropriate information and leave things the way they are. There's no rush.

    First, does your 401a have good low-cost offerings? Sometimes public retirement options are amazing (especially pension-type choices) and cannot be replicated anywhere else. If you're happy with the fund choices and cost of them (as well as any costs associated with the 401a in general), then I wouldn't be eager to roll it over into anything. If the investment choices are poor, then there's more incentive to make the move.

    Another major thing to consider is if you want to pay taxes this year on the rollover. A 401a is pre-tax so if you roll it into a Roth IRA, you will owe taxes. This might make sense if you think you'll be in a low tax bracket this year; but it doesn't make sense if you're in a high bracket. You can also roll it over into a normal rollover IRA and would thus not owe taxes.

    An IRA is nice because you have a lot more choices and can ensure you find low cost offerings. However, there are some advantages to a 401a/k over an IRA. First, the bankruptcy protections laws are different. I am not a lawyer and I believe it depends on the state, but in general a 401a/k is more protected than an IRA from creditors. In addition, if you decide to go the normal rollover IRA route, if you later want to contribute to a Roth IRA via the backdoor method (due to income limit restrictions; google this if you're unsure what it is), you'll be unable to keep your rollover assets and your new backdoor Roth IRA money separate and will thus owe taxes. Keeping it in a 401a/k will allow this separation and you'll be able to employ the backdoor Roth technique (applicable to incomes >$105k single, >$167k joint, which might not be you now, but might be some day).

    In summary, if your current investment options are good and low-cost in the 401a, I'd keep your money where it is. There is certainly some accounting/tracking incentive to have as few accounts as possible to keep things simple, though. Thus, if your new employer has equally good or better choices, you might want to consider rolling your 401a into the new 401k in six months. However, this is contingent on your particular plan so you'd have to ask if this is allowable. I'm also not sure if there are additional restrictions with a 401a (as opposed to 401k) as I am not that familiar with this account type, so you'd have to ask to make sure. If you expect to be in a atypically low tax bracket just this year, then rolling it over into a Roth IRA makes sense. Your decision should be based on an analysis of the current offerings and fees. But all else being equal, I'd personally err on the side of keeping my 401a in the same account or rolling it into my new employers 401k in six months. Rollover IRAs are particular popular simply because most 401ks have terrible offerings and charge exorbitant fees. I don't know if that's the case in your situation or not, so that's something you'll have to evaluate. If you do decide a rollover is the best option, make sure it's a direct or trustee-to-trustee rollover. That way, you won't have to worry about the tax consequences of your rollover.

    Hope that helps. Good luck!

    ReplyDelete
  17. Thanks a bunch for the detailed reply, i really appreciate it. This year will be the last year i incurred tuition expenses on an executive program i just finished, and my income will significantly increase with my new job. My wife will finish her training as well over the next year orso and her income is expected to jump significantly, affecting our joint income even more. This is the reason i was thinking rolling over the 401a into a roth account now might be a good thing to do. The 401a plan with my previous employer however is with ing and there are a good number of fund options at a low cost, so i think it is an attractive plan to be in. The last reason i was considering rolling over is because i will only be eligible for a 401k with my new employer in january, so no contributions will get made from august on. my old 401a wont allow me to contribute on my own neither. i figured if i rolled over my old 401a, i would be able to make contributions to the account for the remainder of the year. Please let me know what you think, i really value the feedback.

    ReplyDelete
  18. If your income this year is significantly lower than it will be in the foreseeable future, then I'd agree with you that rolling it over to a Roth IRA would be a wise decision. Paying taxes now when you're in a (relatively) low tax bracket is better than waiting for the unknown. However, your rationale about being able to make contributions for the remainder of the year doesn't make sense. Either way (if you leave it alone in the 401a or put it in a IRA), you can make contributions for the remainder of the year in an IRA. It won't be the same IRA account if you keep it in the 401a, but it doesn't affect how much you can contribute for the remaining of the year and it all ends up as the same amount of tax deferred/free money, so this reason isn't compelling. Again, just make sure ING doesn't simply cash out the account and write a check in your name (if possible). Instead, let Vanguard, Schwab, Fidelity, or whomever you're rolling it over to handle the transfer of assets. Hope that helps!

    ReplyDelete
  19. Would you be willing to critique my portfolio? If so, please let me know how I can get in touch with you. Thank you :)

    ReplyDelete
  20. Sure! Feel free to either post your portfolio in the comments section and I will respond or shoot me an e-mail at theinvestingguy@gmail.com.

    ReplyDelete
  21. Thanks for the comparison of funds and expenses. I have my accounts at Fidelity so I am constructing a lazy portfolio -- more work than the name implies! Fidelity has now expanded their offering of index funds, summarized at http://personal.fidelity.com/products/funds/content/UnderstandingMutualFunds/fidelity_funds_fixed_10pts.shtml.cvsr
    They have both Investor share class for $10K investments and lower-expense Advantage class for $100K investments. You may wish to include these new options in your table, such as Spartan Emerging Markets Index and Spartan Real Estate Index which have more competitive expense ratios. Also, they now offer 30 fee-free ETFs including HYG High Yield Corporate Bond.

    ReplyDelete
  22. Thanks for the information. I'll update the charts shortly. There have been several changes in offerings with all three firms over the past couple years and I have done my best to capture them, but it's constantly dynamic. At least, all three firms are improving their offerings! Competition at its best. At some point, though, I may give up on making sure everything is up-to-date as even expense ratios are constantly changing. Cheers!

    ReplyDelete
  23. A quick question then. How do you feel about adding individuals stocks to the mix? Does it make sense to ever put individual stocks into a "lazy" portfolio or can I get away with buying and holding these?

    ReplyDelete
  24. Yes, you can get away with simply buying and holding index funds in a lazy portfolio. In fact, that's the preferred method and I would recommend avoiding individual stocks. If you feel the need or really enjoy the stock picking game, then I'd recommend limiting your individual stocks to no more than 5% of your portfolio. Basically, I would view this as "play money" - if you get lucky and choose some good ones, you'll reap some benefits, but if you lose it all, it won't be the end of the world.

    The only caution I would give is that if you happen to do well with your stock picks at the beginning, it's likely due to chance/luck rather than actual skill. So, if you don't stick to a defined upper cap of investments in individual stocks, then this could be risky behavior as it's possible you'll convince yourself you're a master stock picker and expand your holdings to a significant sum of money, and then when your luck runs out, it could be bad news....Hope that helps. Good luck.

    ReplyDelete
  25. The Index Funds/Commission-Free ETFs Commonly Used in Portfolios is a very helpful chart. Well done.

    ReplyDelete
  26. It is my first time write on this blog. I am close to 50, I would like to roll over my current mutual funds to vanguard and fidelity, about 300K each. I don't have experience and may not do rebalance that often. What is the best portfolio, any fund you think is a must? Thank you!

    ReplyDelete
  27. Hey! Vanguard and Fidelity are both good choices. I don't think there is a one size fits all "best portfolio" or any particular "must have" funds. But based on the limited information you provided and the fact that you do not want to rebalance that often, I would recommend a Vanguard Target Retirement or LifeStrategy Fund (that has the stock/bond mix of your liking) since they are low cost and rebalance automatically. If you want to go the active route (or want to split money between indexed and active), Vanguard Wellesley Income (VWIAX) would be a good low cost choice. It is about 60% bonds and 40% stocks. On the Fidelity side, check out their Spartan line of funds: http://personal.fidelity.com/products/funds/content/UnderstandingMutualFunds/fidelity_funds_fixed_10pts.shtml.cvs

    Hope that helps!

    ReplyDelete
  28. Just a heads up that Schwab lowered the expense ratio on a lot of their ETFs:
    http://www.schwab.com/public/schwab/investing/accounts_products/investment/etfs/schwab_etfs

    Here's a select few:
    SCHB: 0.06% -> 0.04% (Total US Stock Market)
    SCHE: 0.25% -> 0.15% (Emerging Markets)
    SCHF: 0.13% -> 0.09% (Developed Markets)
    SCHH: 0.10% -> 0.07% (REIT Index)
    SCHZ: 0.10% -> 0.05% (Total Bond)

    ReplyDelete
  29. Just noticed the NAV of FTBFX just dropped from 11.32 to 11.04 in one day! What happened? I think you commented that FTBFX had a disastrous 2008, but there is nothing going on now to my knowledge that would come close to the Great Recession of 2008. What should I do with my position in FTBFX? What is a good alternative to it in Fidelity or Vanguard?

    ReplyDelete
  30. I believe fidelity and vanguard are solid financial firms. So I would not blame anyone for sticking with them.

    ReplyDelete
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  32. Hi there:
    I'm wondering if Vanguard has developed good ETF alternatives for SHY and TLT yet. Thanks!

    ReplyDelete
  33. Thanks so much for this analysis. Very helpful as I try to figure out what to do with what's left of m portfolio. Do you have any thoughts on TIAA-CREF? I have the opportunity to work with them. I think they're a non-profit, their fees look pretty low, mt friends say they did just fine through the recession, and they seem to have better than average returns vs the Vanguards and Fidelities of the world. Am I missing something? Is their customer service terrible or something? It seems too good to be true?

    ReplyDelete
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  35. In fact, a lot of investors these days prefer to create the entirety Lazy Portfolio with ETFs. This can make sense depending on your personal circumstances. See this post for more explanation of funds vs. ETFs and consult this Vanguard calculator to compare costs of equivalent funds/ETFs. If you go the ETF route, you clearly cannot invest $100 at a time repeatedly as those commissions that typically range from $7-20 would be prohibitively expensive.
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  36. That's an in-depth article if I've ever seen one. It seems that most people I know prefered Vanguard for their 401ks and IRAs, mainly because of the user-friendliness of their website and the extensive list of their funds.

    ReplyDelete
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