Talk to me about mutual funds.

[fuzzybabybunny]

Correct me if I'm wrong:

- A mutual fund could have a yearly fee of 1% or less. This is to pay for the managers that actively manage the fund.

- A mutual fund could have a load - a front load and/or a back load. If you spend $10,000 to buy shares of a fund with a front load of 1%, you pay 1% ($100) to buy that fund. When you take out $10,000 from that fund and if it has a back load of 5%, you have to pay $500 to exit and take out that $10,000. The loads are not a yearly thing. They are only paid at entry and exit. If you park your money in the same mutual fund for years and years and years, the front load will be spread out, but the back load will sting a lot when you decide to cash out.

Does this sound about right?

I've heard that Vanguard mutual funds are the best because they're no-load, no fees - what are their symbols?

I'm considering going with TDAmeritrade and they don't seem to have any Vanguard funds, but they have a huge list of other No Transaction Fee (NTF) funds:

https://research.tdameritrade.com/grid/public/mutualfunds/fundfamilies/fundfamilies.asp?tab=ntfs

 

[zinfamous]

https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT

Done.

all your questions answered

 

[brianmanahan]

- A mutual fund could have a yearly fee of 1% or less. This is to pay for the managers that actively manage the fund.

correct. a %1 expense ratio (ER) is pretty high - after 30 years, %26 of your return has gone to this fee (because (1-.01)^30 = .74).

fees aren't the only thing that matter, but they're probably the most important thing. shoot for %0.2 or below - that way only %5 of your return goes to fees after 30 years.

- A mutual fund could have a load - a front load and/or a back load.

yes, but load funds are almost always terribly overpriced. i would never recommend buying one if you have other, no-load options.

I've heard that Vanguard mutual funds are the best because they're no-load, no fees - what are their symbols?

I'm considering going with TDAmeritrade and they don't seem to have any Vanguard funds, but they have a huge list of other No Transaction Fee (NTF) funds:

https://research.tdameritrade.com/grid/public/mutualfunds/fundfamilies/fundfamilies.asp?tab=ntfs

vanguard is one of the best, but other companies are fine too. i use vanguard, fidelity and schwab.

if you do go with TD, consider ETFs. it looks like their mutual funds are limited when looking for low ER index fund options, but there are some good choices in ETFs.

for US stocks, VTI is available (the ETF equivalent of the VTSAX mutual fund that zinfamous posted). and VEU for an international stock index.

or shoot, if you buy VT, it covers both US and other countries stocks in one ETF.

and if you want US bonds, they have vanguard's BND available.

 

[MongGrel]

https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT

Done.

all your questions answered

Pretty much what he said.

Buffet has recommended them a long time now, but I have a lot of stuff in company things from the past.

The wife even works for a successful high end investment firm, but I refuse to let her screw with a few things awhile now.

 

[Charmonium]

Most Vanguard funds have very low fees, like a few tenths of a percent or less. But this is for the passive funds. Funds that are actively managed cost more in fees and I think 30% of Vanguard funds are now actively managed. So you have to pay attention and look at the fees for every fund.

I have most of my money in T Rowe Price actively managed funds and I've done pretty well with them. The rest is in Vanguard.

 

[fuzzybabybunny]

Thanks for all the info. I can't seem to find a f*cking email address for Vanguard's customer support. Does it just not exist? It looks like I *have* to call in to get anything out of them.

Anyone with a Solo 401(k) and ROTH IRA? Can you fund both electronically or do you have to send in a paper check?

 

[zinfamous]

Thanks for all the info. I can't seem to find a f*cking email address for Vanguard's customer support. Does it just not exist? It looks like I *have* to call in to get anything out of them.

Anyone with a Solo 401(k) and ROTH IRA? Can you fund both electronically or do you have to send in a paper check?

I dunno how to handle non-payroll 401k, but IRAs can be funded electronically direct from bank, just like paying a bill or transferring between any accounts.

Rollovers sometimes need check written out from one vendor to the next, but mailed through you.

 

[DaveSimmons]

Note for mutual funds there are 2 kinds:

Index fund - it just buys and holds a basket of stocks to match an "index" like the S&P 500 (US largest companies) or similar: "large cap" = big companies, "small cap" = small companies, "foreign" / "international" (might include US stocks!) / "ex-US" (excludes US stocks).

Actively managed - the bad kind for most people! run away! - they pay stock pickers to play the market. They fail to beat the S&P 500 more often than not.

A good index fund will have MUCH lower expenses than an actively managed fund, because their own expenses are much lower. There is less risk, and often a lower tax bite for those of us who also have NON-retirement brokerage accounts.

FYI, the Target 2040 / 2050 / etc. funds at Vanguard are mutual funds that are just a collection of their index funds. The tricky part is that you buy the fund now and it is (say) 10% bonds / 90% stocks. Over time it increases the % of bonds, so by year 2040 or whenever there are a lot more bonds in the fund which is considered safer.

Good index funds at places like Vanguard will not have a % load, just maybe a flat trading fee when buying them (like with stocks), and maybe a fee if you sell them too soon (like within 6 months) since they don't want day traders.

 

[fuzzybabybunny]

Wow, I just did some reading on Vanguard the company. I didn't realize that the owners are the same as the investors. It's owned by its mutual funds, lol, so that explains a lot. Also explains why a lot of people seem to have problems with their dysfunctional customer support and lack of investment advice.

And it also explains https://www.bogleheads.org/, after John C. Bogle, the founder.

Everything just seems to frickin' cheap but low-tech.

 

[DaveSimmons]

Well, over 30 years saving even 0.1% adds up to 3% more at retirement. Saving 0.5% over 30 years means you have an extra 16% at retirement.

So when you pay an extra 0.5% in expenses for gold-plated service you buy someone else a very nice car that could have been yours.

But you might be happier with Schwab then. They have a pretty good collection of low-expense no-load index funds and ETFs, and they do offer electronic funds transfer and more hand-holding.

 

[MongGrel]

Well, over 30 years saving even 0.1% adds up to 3% more at retirement. Saving 0.5% over 30 years means you have an extra 16% at retirement.

So when you pay an extra 0.5% in expenses for gold-plated service you buy someone else a very nice car that could have been yours.

This. +1

 

[stlc8tr]

Thanks for all the info. I can't seem to find a f*cking email address for Vanguard's customer support. Does it just not exist? It looks like I *have* to call in to get anything out of them.

Anyone with a Solo 401(k) and ROTH IRA? Can you fund both electronically or do you have to send in a paper check?

They don't use regular email. They have what they call "secure email" which is available once you have an account with them.

They are a bit behind in terms of tech since they strive to be the low cost leader but they did recently introduce 2FA.

 

[fuzzybabybunny]

Ok, I just took a gander at ETFs versus Mutual Funds and I'm confused again.

At the base of it all, it seems like ETF and Mutual Funds are simply a conglomeration of different securities.

The underlying "things" that change the value of the conglomerate will be the individual securities.

Thus, if an ETF and a Mutual Fund both have the same mix of securities, they will both perform the same, but the Mutual Fund will likely always have higher fees associated with it because of its active management. And the ETF can be bought on the regular exchange, unlike some mutual funds, and have higher liquidity.

So what are the benefits to mutual funds? Why not just do ETFs for everything?

 

[DaveSimmons]

Mutual funds are not all "actively managed," actively managed means it has stock or bond pickers choosing what to buy. Index funds just buy what is in the index with no choosing, that part is the same for both mutual funds and ETFs.

An S&P 500 index mutual fund and ETF will have roughly the same contents (stocks in the 500 companies), and will grow at roughly the same rate. The ETF may have a lower expense ratio but that is not guaranteed. A Vanguard S&P mutual fund might have lower expenses than a Company Y ETF.

ETFs were introduced to allow trading funds like stocks. ETF = Exchange Traded Fund. They are not automatically better or worse than similar mutual funds except they are much better for day trading. (Don't do day trading!)

If the company you go with has ETFs with lower expense ratios than their mutual funds for the same index then picking the ETFs is probably OK.

One thing to watch out for is that the mutual fund might let you buy shares for free (no transaction fee, no load) while the ETF has a transaction fee like when you buy stock shares. The mutual fund may also offer free automatic reinvestment of dividends while the ETF just adds them into your account as cash.

 

[fuzzybabybunny]

Mutual funds are not all "actively managed," actively managed means it has stock or bond pickers choosing what to buy. Index funds just follow an index with no choosing, that part is the same for both mutual funds and ETFs.

An S&P 500 index mutual fund and ETF will have roughly the same contents, and will grow at roughly the same rate. The ETF may have a lower expense ratio but that is not guaranteed. A Vanguard S&P mutual fund might have lower expenses than a Company Y ETF.

ETFs were introduced to allow trading funds like stocks. ETF = Exchange Traded Fund. They are not automatically better or worse than similar mutual funds except they are for day trading.

If the company you go with has ETFs with lower expense ratios than their mutual funds for the same index then picking the ETFs is probably OK. The mutual fund may also offer free automatic reinvestment of dividends while the ETF just adds them into your account as cash.

One thing to watch out for is that the mutual fund might let you buy shares for free (no transaction fee, no load) while the ETF has a transaction fee like when you buy stock shares.

Ok, thanks.

The transaction fee is normally tiny in relation to the amount of dollars you spend buying ETFs, right? Like if I buy $10,000 of an ETF and the transaction fee for this single trade is $10, it's not exactly something to worry about, especially if I'm not day trading and want to park my money for decades in an ETF that tracks an index for retirement?

 

[zinfamous]

Wow, I just did some reading on Vanguard the company. I didn't realize that the owners are the same as the investors. It's owned by its mutual funds, lol, so that explains a lot. Also explains why a lot of people seem to have problems with their dysfunctional customer support and lack of investment advice.

And it also explains https://www.bogleheads.org/, after John C. Bogle, the founder.

Everything just seems to frickin' cheap but low-tech.

cheap & low-tech when it comes to your money is exactly what you want.

Just put all of your money into the Index fund that I linked and forget it.

 

[zinfamous]

Mutual funds are not all "actively managed," actively managed means it has stock or bond pickers choosing what to buy. Index funds just buy what is in the index with no choosing, that part is the same for both mutual funds and ETFs.

An S&P 500 index mutual fund and ETF will have roughly the same contents (stocks in the 500 companies), and will grow at roughly the same rate. The ETF may have a lower expense ratio but that is not guaranteed. A Vanguard S&P mutual fund might have lower expenses than a Company Y ETF.

ETFs were introduced to allow trading funds like stocks. ETF = Exchange Traded Fund. They are not automatically better or worse than similar mutual funds except they are much better for day trading. (Don't do day trading!)

If the company you go with has ETFs with lower expense ratios than their mutual funds for the same index then picking the ETFs is probably OK.

One thing to watch out for is that the mutual fund might let you buy shares for free (no transaction fee, no load) while the ETF has a transaction fee like when you buy stock shares. The mutual fund may also offer free automatic reinvestment of dividends while the ETF just adds them into your account as cash.

ETFs also allow you to buy them one share at a time, as with stocks. Most mutual funds have buy-in minimums.

VTSAX (Vanguard's total market index) that I linked above has a $10k minimum, at a 0.05% Exp ratio for the Admiral shares class. The same fund has Investor shares class at 0.16% Expense ratio and $3k minimum investment. And the same fund also has an ETF option. OP: you can find links to those options at the top of the profile page that I linked.

 

[zinfamous]

Ok, thanks.

The transaction fee is normally tiny in relation to the amount of dollars you spend buying ETFs, right? Like if I buy $10,000 of an ETF and the transaction fee for this single trade is $10, it's not exactly something to worry about, especially if I'm not day trading and want to park my money for decades in an ETF that tracks an index for retirement?

Yeah, I wouldn't worry too much about that if you are buying in large sums and not too often.

If you open a Vanguard account, you do have discounts for maybe your first 25 trades on a basic account (stocks and ETFs).

If you're interested in just putting your money in rather safe index funds that grow slowly but steadily, a very good strategy is to focus on 2 or maybe 3 classes:

--an S&P 500 Index like DS mentioned (Vanguard's version is VINIX, I think) or a total stock Index fund (like VTSAX, the entire stock market, so better because you get the volatility of low and mid-cap companies)

--a total bond Index for even slower growth but less volatility and a bit of a hedge against deflation (VBTLX from Vanguard). These are usually good "income" funds because many bond funds pay dividends monthly

--an REIT--real estate investment trust. These are Index funds that own various packages of commercial, industrial properties in various sectors. It's basically like being a landlord without doing any of the work or paying property taxes. These add good diversity if you are heavily into stocks and offer a hedge against hyper-inflation (so rare and easy to see ahead of time that it probably isn't worth worrying about). REITs offer good growth with really nice periods of short-term growth (when rents are booming, duh) and many of these Index funds, like Bond funds, pay frequent dividends. REITs will have higher expense ratios than the other classes of funds.

Go to your chosen company and do some research there about these types of funds.

If you are in your 20s-30s, I would suggest going heavily, if not all-in into stocks. More volatility, but far more growth over the long term. This is the only thing you should think about if you aren't "retiring" for another 30 or 50 years. I would say at least 95% into stocks if not 100%.

Put the rest into bonds and or REITs or maybe even some foreign stock funds. (VTSAX is a US stock fund, but because it invests in the total stock market, it does have money in some foreign companies, although it is a small investment)

You should also keep Bonds and REITs and any fund like that with frequent dividends and returns into a tax-deferred account, like any IRA or if you manage to set up that 401K. Because these will be frequently returning cash, you don't want to be paying taxes on those every year.

 

[kranky]

FBB, I think you'd benefit from checking out the bogleheads Wiki - it's incredibly complete and written to be understandable to the novice.
https://www.bogleheads.org/wiki/Main_Page

For example, the ETF vs. Mutual Funds section: https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

 

[dullard]

Fuzzybabybunny, here are a bunch of comments / corrections related to your posts:

A mutual fund could also have a yearly fee of well over 1%. These should be avoided unless you have a strong reason to have one.

If you want to buy Vanguard funds, go directly to Vanguard. There is no reason to pay the overhead costs and have the hassle of a middleman (TDAmeritrade or other).

Vanguard has a different email address (secure online contact actually) for each type of investor (for example someone with under $50,000 invested gets a different contact than someone with $10,000,000+ invested). Thus, no you don't just contact them by email until you have an account; you would either have to call them or open an account. They are usually really good at answering phones and using their online communications, with one exception. Right around April 15, when everyone is scrambling to do their last-minute transactions, then their online communications can be delayed a couple of days.

At least with Vanguard, you can fund things electronically or with a check. It is the same with the other companies that I've dealt with, but I haven't used them all.

Yes, the benefit of Vanguard is that things are frickin' cheap. When it comes to mutual funds, being cheap is the #1 criteria that you should be concerned with (at least when starting to invest). #2 should be that the mutual fund contains the type of investments that you want in your portfolio. With Vanguard, you get choice: (A) cheap but you do it yourself, (B) cheap + one-time consulting fees, or (C) expensive + actively managed accounts.

Mutual funds are not always actively managed. They may be, or they may not be. The fee will be very drastically different between the two.

ETFs and mutual funds are very similar. The main difference is that an ETF can be traded during the day (the price will rise and fall, sometimes dramatically throughout the day) and a mutual fund can only be traded once at the closing price for that day. Other than that, there is not necessarily any difference. But, be careful to check the details since there could be subtle differences such as fees or minimum purchases. I like mutual funds simply because I'm too busy during the day to time an ETF purchase just right. Others like ETFs since they tended to have lower minimums and the mid-day transactions allow for more flexibility. I look at the stock prices just before the stock market closes and if prices are down, then I buy the mutual fund that I wanted.

ETFs have yearly fees just like mutual funds (plus their buying/selling fees). I wouldn't sweat the ~$10 one-time fees. Those are manageable. I would worry about fees that sound small but are actually huge. For example a 1% yearly fee means a massive cost to you over your lifetime. A $1000 investment that earns a typical 8% per year with a 1% yearly fee ultimately is a $2450 cost to you over 30 years. And that was with a small $1000 investment and a relatively common 1% fee. Things get much bigger with larger investments and larger fees. In many actively managed funds, the fund manager becomes a billionaire and the fund investors who took the risks with their money get scraps.

 

[kaerflog]

VTSAX (Vanguard's total market index) that I linked above has a $10k minimum, at a 0.05% Exp ratio for the Admiral shares class. The same fund has Investor shares class at 0.16% Expense ratio and $3k minimum investment. And the same fund also has an ETF option. OP: you can find links to those options at the top of the profile page that I linked.

^^^^^^ THIS.
If you're just getting into investing, buy Vanguards Index Fund(VTSAX) and call it a day. You really can't go wrong.
Put in at least $10K and you can get the Admiral class which has the low .05% exp ratio.

 

[Uppsala9496]

VTI (0.05% expense ratio) is the total stock market ETF if you don't have the $10k for the Admiral Shares.

 

[Spacehead]

a %1 expense ratio (ER) is pretty high - after 30 years, %26 of your return has gone to this fee (because (1-.01)^30 = .74).

fees aren't the only thing that matter, but they're probably the most important thing. shoot for %0.2 or below - that way only %5 of your return goes to fees after 30 years.

Is 1% about normal for an actively managed account?

Even Jack Bogle said about holding index funds "it cost you 1% a year to own".
https://www.youtube.com/watch?v=q8v-unL6Wcc
Skip to 32:00 in to hear him talk about fees. I realize this is now 3 years old but just wondered.

 

[kranky]

Is 1% about normal for an actively managed account?

Even Jack Bogle said about holding index funds "it cost you 1% a year to own".
https://www.youtube.com/watch?v=q8v-unL6Wcc
Skip to 32:00 in to hear him talk about fees. I realize this is now 3 years old but just wondered.

1% for an advisor to manage someone's account is in the ballpark of average. The killer is that it is on top of the expense ratios of the funds held in the account.

Also want to note that people still have to do their homework even when considering an index fund. For example, the Rydex S&P 500 fund is an index fund, but somehow they still deign to charge an expense ratio of 1.55% on Class A shares. Most of that money goes to the advisors who sell the fund to clients.

 

[zinfamous]

1% for an advisor to manage someone's account is in the ballpark of average. The killer is that it is on top of the expense ratios of the funds held in the account.

Also want to note that people still have to do their homework even when considering an index fund. For example, the Rydex S&P 500 fund is an index fund, but somehow they still deign to charge an expense ratio of 1.55% on Class A shares. Most of that money goes to the advisors who sell the fund to clients.

Holy crap! Seems like we now need a legal definition of "Index Fund" like the attempted bill to require "Fiduciary" designation for FAs.

How can something with a 1.55% ER be an Index Fund? I can only assume the same amount of "work" is being done to maintain the set stock exposure in that fund as compared to the work needed to maintain the 0.05% or 0.1% funds...