Lies, darn lies, and ... expense ratios

1.5% average expense ratio is one of those urban legend figures, that
"everyone" bandies about without knowing what it represents. While I
can't say with certainty what it represents, I can give some ideas about
what it is not.



It is not the "average" (whatever "average" means) of all mutual funds:



"The average expense ratio, according to Morningstar.com, is 1.5% for
domestic stock funds, and 1.1% for bond funds." April 2003.



So at best, it is the "average" of U.S. domestic mutual fund (not all
fund) expenses.

It does not even represent all U.S. domestic funds, because it excludes
index funds:

"According to Morningstar, the average expense ratio for an actively
managed [domestic] fund [is] 1.5%."



(Nov. 2004)

If it did include index funds, the average would be lower, but not by as
much as people think - large cap index funds (which should have a lower
average expense ratio than all index funds including small caps) average
more than 2/3% in expenses:

"The subset of [U.S. large-cap mutual funds in Morningstar's database]
categorized as index funds sports an average expense ratio of 0.68%. ...



(January 2005)


Even S&P 500 index funds, which ought to be the cheapest funds (the S&P
500 stocks are highly liquid, full replication is used, ...) cost nearly
as much as any other index fund (on "average"):

"S&P 500 index objective funds: 0.65% ... Source: Lipper, July 2002"


What does "average" mean? It probably includes all share classes, which
means that it overweights load funds (because load funds often have
three or more share classes), and overstates expenses (since the loads
embedded in "B" shares are counted as expenses).

For example:

Mid Cap Blend average expense: 1.46%

(Go to Morningstar's fund screener, ask for mid-cap blend category, and
screen; at bottom of page is average expense for the selected category.)



Yet: "As of June 2004 [there was a] 1.30% category average for distinct
mid-cap blend funds (multiple share classes counted as a single fund)
according to Morningstar."



(Of course, I don't know how this distinct fund average was computed
either - what expense was used for each fund? That of the largest share
class, the oldest share class, the average cost across share classes?)

For those who think that there's much difference between median and mean
("average"?):
"(WSJ, Lipper 2003) ... The median stock fund's expense ratio, 1.46%."


Finally, if one computes "average" by averaging the fees levied on each
dollar invested (the "average cost of investing in funds"), one sees a
very different picture:

"[T]he dollar-weighted expense ratio fell ... to 0.89% in 2004."

"[I]f you exclude institutional funds, the dollar-weighted average
expense ratio [was] 0.96% [in 2004]."

"The dollar-weighted no-load average [was] 0.79% in 2004."


(Morningstar data).

Sure wish I knew what types of funds were included in these "averages"
:-)



--

Mark Freeland

Re: Lies, darn lies, and ... expense ratios

Also,

I don't think most/any of these reported expense ratios include trading
costs and taxes. If they did, expense ratios would be much higher.


"Mark Freeland" <> wrote in message
news:
> 1.5% average expense ratio is one of those urban legend figures, that
> "everyone" bandies about without knowing what it represents. While I
> can't say with certainty what it represents, I can give some ideas about
> what it is not.
>
>
>
> It is not the "average" (whatever "average" means) of all mutual funds:
>
>
>
> "The average expense ratio, according to Morningstar.com, is 1.5% for
> domestic stock funds, and 1.1% for bond funds." April 2003.
>
>
>
> So at best, it is the "average" of U.S. domestic mutual fund (not all
> fund) expenses.
>
> It does not even represent all U.S. domestic funds, because it excludes
> index funds:
>
> "According to Morningstar, the average expense ratio for an actively
> managed [domestic] fund [is] 1.5%."
>
>
>
> (Nov. 2004)
>
> If it did include index funds, the average would be lower, but not by as
> much as people think - large cap index funds (which should have a lower
> average expense ratio than all index funds including small caps) average
> more than 2/3% in expenses:
>
> "The subset of [U.S. large-cap mutual funds in Morningstar's database]
> categorized as index funds sports an average expense ratio of 0.68%. ...
>
>
>
> (January 2005)
>
>
> Even S&P 500 index funds, which ought to be the cheapest funds (the S&P
> 500 stocks are highly liquid, full replication is used, ...) cost nearly
> as much as any other index fund (on "average"):
>
> "S&P 500 index objective funds: 0.65% ... Source: Lipper, July 2002"
>
>
> What does "average" mean? It probably includes all share classes, which
> means that it overweights load funds (because load funds often have
> three or more share classes), and overstates expenses (since the loads
> embedded in "B" shares are counted as expenses).
>
> For example:
>
> Mid Cap Blend average expense: 1.46%
>
> (Go to Morningstar's fund screener, ask for mid-cap blend category, and
> screen; at bottom of page is average expense for the selected category.)
>
>
>
> Yet: "As of June 2004 [there was a] 1.30% category average for distinct
> mid-cap blend funds (multiple share classes counted as a single fund)
> according to Morningstar."
>
>
>
> (Of course, I don't know how this distinct fund average was computed
> either - what expense was used for each fund? That of the largest share
> class, the oldest share class, the average cost across share classes?)
>
> For those who think that there's much difference between median and mean
> ("average"?):
> "(WSJ, Lipper 2003) ... The median stock fund's expense ratio, 1.46%."
>
>
> Finally, if one computes "average" by averaging the fees levied on each
> dollar invested (the "average cost of investing in funds"), one sees a
> very different picture:
>
> "[T]he dollar-weighted expense ratio fell ... to 0.89% in 2004."
>
> "[I]f you exclude institutional funds, the dollar-weighted average
> expense ratio [was] 0.96% [in 2004]."
>
> "The dollar-weighted no-load average [was] 0.79% in 2004."
>
>
> (Morningstar data).
>
> Sure wish I knew what types of funds were included in these "averages"
> :-)
>
>
>
> --
>
> Mark Freeland
>
>

Re: Lies, darn lies, and ... expense ratios

"NoEd" <> wrote in message
news:
> Also,
>
> I don't think most/any of these reported expense ratios include trading
> costs and taxes. If they did, expense ratios would be much higher.

I know what you mean. How could they include taxes in the expense ratio?
Check this out:

Let's say you have $3,000 in an IRA and the fund is Vanguard Emerging
Markets Index Fund.
Expenses:
0.48% annual
0.5% purchase fee.
0.5% redemption fee.
$2.50 per quarter account maintenance fee until you have $10,000
$10.00 per year IRA custodial fee.
$10.00 per year low balance fee if balance dips below $2,500
Now add your:
Trading fees and taxes (?).


iShares Emerging Markets Index Fund:
0.75% annual

Re: Lies, darn lies, and ... expense ratios

Vanguard is a "rip off" for small accounts. I didn't know there was a
purchase fee. I have my son's college fund there, but I have all my money
at TD. I have to get the time to move to Scottrade.


"Ed" <> wrote in message
news:
>
> "NoEd" <> wrote in message
> news:
>> Also,
>>
>> I don't think most/any of these reported expense ratios include trading
>> costs and taxes. If they did, expense ratios would be much higher.
>
> I know what you mean. How could they include taxes in the expense ratio?
> Check this out:
>
> Let's say you have $3,000 in an IRA and the fund is Vanguard Emerging
> Markets Index Fund.
> Expenses:
> 0.48% annual
> 0.5% purchase fee.
> 0.5% redemption fee.
> $2.50 per quarter account maintenance fee until you have $10,000
> $10.00 per year IRA custodial fee.
> $10.00 per year low balance fee if balance dips below $2,500
> Now add your:
> Trading fees and taxes (?).
>
>
> iShares Emerging Markets Index Fund:
> 0.75% annual
>
>
>

Re: Lies, darn lies, and ... expense ratios

On 8/9/05 5:30 PM, NoEd wrote:
> Vanguard is a "rip off" for small accounts. I didn't know there was a
> purchase fee. I have my son's college fund there, but I have all my money
> at TD. I have to get the time to move to Scottrade.
>
>
> "Ed" <> wrote in message
> news:
>
>>"NoEd" <> wrote in message
>>news:
>>
>>>Also,
>>>
>>>I don't think most/any of these reported expense ratios include trading
>>>costs and taxes. If they did, expense ratios would be much higher.
>>
>>I know what you mean. How could they include taxes in the expense ratio?
>>Check this out:
>>
>>Let's say you have $3,000 in an IRA and the fund is Vanguard Emerging
>>Markets Index Fund.
>>Expenses:
>>0.48% annual
>>0.5% purchase fee.
>>0.5% redemption fee.
>>$2.50 per quarter account maintenance fee until you have $10,000
>>$10.00 per year IRA custodial fee.
>>$10.00 per year low balance fee if balance dips below $2,500
>>Now add your:
>>Trading fees and taxes (?).
>>
>>
>>iShares Emerging Markets Index Fund:
>>0.75% annual
>>

Actually, it looks like the Vanguard and iShares funds cost about the
same.

Vanguard charges purchase and redemption fees. On a $3k account, this
amounts to a total of $30, about what you'd pay for a round trip via
most brokers.

Vanguard charges about 1/4 pt less in expenses, which roughly offsets
the $10/yr account maintenance fee.

There *may* be an IRA custodial fee (depending on other holdings), but
there's no low-balance fee in an IRA.

Overall, it's pretty much a wash, IMO.

Bottom line is that it's better to have a larger account, and to hold
the investment awhile. Not surprising.

-Jim

Re: Lies, darn lies, and ... expense ratios

Jim, you missed the 0.5% in and 0.5% out of the fund.
This alone could make the expenses higher depending on how long you own the
fund. No matter how long you own it that 0.5% sales charge/load will be
waiting for you. I know, I know, it's not a load because the money goes to
the fund. If you're leaving the fund you shouldn't care where it goes, it's
a sales charge to you.

An important fact: Vanguard is no longer the index fund leader. Barclay's
iShares offer more choices and low fees, many lower than those imposed by
Vanguard.


"Jim Davidson" <> wrote in message
news:
> On 8/9/05 5:30 PM, NoEd wrote:
>> Vanguard is a "rip off" for small accounts. I didn't know there was a
>> purchase fee. I have my son's college fund there, but I have all my
>> money at TD. I have to get the time to move to Scottrade.
>>
>>
>> "Ed" <> wrote in message
>> news:
>>
>>>"NoEd" <> wrote in message
>>>news:
>>>
>>>>Also,
>>>>
>>>>I don't think most/any of these reported expense ratios include trading
>>>>costs and taxes. If they did, expense ratios would be much higher.
>>>
>>>I know what you mean. How could they include taxes in the expense ratio?
>>>Check this out:
>>>
>>>Let's say you have $3,000 in an IRA and the fund is Vanguard Emerging
>>>Markets Index Fund.
>>>Expenses:
>>>0.48% annual
>>>0.5% purchase fee.
>>>0.5% redemption fee.
>>>$2.50 per quarter account maintenance fee until you have $10,000
>>>$10.00 per year IRA custodial fee.
>>>$10.00 per year low balance fee if balance dips below $2,500
>>>Now add your:
>>>Trading fees and taxes (?).
>>>
>>>
>>>iShares Emerging Markets Index Fund:
>>>0.75% annual
>>>
>
> Actually, it looks like the Vanguard and iShares funds cost about the
> same.
>
> Vanguard charges purchase and redemption fees. On a $3k account, this
> amounts to a total of $30, about what you'd pay for a round trip via most
> brokers.
>
> Vanguard charges about 1/4 pt less in expenses, which roughly offsets the
> $10/yr account maintenance fee.
>
> There *may* be an IRA custodial fee (depending on other holdings), but
> there's no low-balance fee in an IRA.
>
> Overall, it's pretty much a wash, IMO.
>
> Bottom line is that it's better to have a larger account, and to hold the
> investment awhile. Not surprising.
>
> -Jim

Re: Lies, darn lies, and ... expense ratios

"Ed" <> wrote in message
news:

> An important fact: Vanguard is no longer the index fund leader. Barclay's
> iShares offer more choices and low fees, many lower than those imposed by
> Vanguard.

"Expenses. This also isn't a close call. [Barclays'] IShares are cheap,
but [Vanguard's] Vipers are even cheaper. The average iShares ETF has an
expense ratio of 0.43%. The typical Viper charges less than half that:
0.22%. No Viper charges more than 0.28%, and the cheapest of the lot,
Vanguard Total Stock Market Vipers and Vanguard Large Cap Vipers, exact just
0.07%, making them the lowest-cost large blend funds available. As with its
traitional funds, Vanguard's mutual fund ownership structure allows it to
deliver services at cost. Meanwhile Barclays bakes into iShares' expense
ratios the price of marketing to financial planners and advisors."



Since my point in this thread was how incomplete (and hence misleading)
statistics can be, it is worth pointing out that looking at "averages" may
not be fair since the mixes of fund types offered isn't the same - Barclays
offers lots of (relatively) expensive single country funds, but then again,
it offers 4-5 different indices for each given domestic style box.

Regardless of how averages are computed, when one looks at comparable
iShares and Vanguard Viper share classes, one sees consistently lower
expenses for the Vanguard funds.

Here's the side by side comparison, where comparable funds exist:

Category Barclays Vanguard
Emerg Mkt 0.75% 0.30%
Europe (broad) 0.60% 0.30%
"Japan" 0.59% 0.18% (both MSCI, Japan vs.
Pacific)
Consumer Sector 0.60% 0.25% (each with 2 consumer funds)
Industrial Sector 0.60% 0.25%
Total Market 0.20% 0.07% (3 Barclay funds @0.20%)
Large Cap Bl 0.09%-0.20% 0.07% (S&P 500,100; NYSE 100, M*
vs.
Vanguard's MSCI)
Large Growth 0.18%-0.25% 0.11% (Russ 1000,3000; S&P 500, M*
vs.
Vanguard's MSCI)
Large Value 0.18%-0.25% 0.11% (same as growth +
Barclay
NYSE 100)
MidCap Bl 0.20%-0.25% 0.08%-0.13% (Russell, S&P, M* vs.

MSCI & extended Mkt)
SmCap Bl 0.20%-0.25% 0.10% (Barclays' Russell, S&P, M*)
SmCap Growth 0.25%-0.30% 0.12% (same as above)
SmCap Value 0.25%-0.30% 0.12% (same as above)
Telecom Sector 0.60%-0.65% 0.25% (2 Barclays funds)
Financial Sector 0.60%-0.65% 0.25% (2 Barclays @0.60%,
one
@0.65%
Health Sector 0.50%-0.65% 0.25% (3 Barclays funds)
Energy Sector 0.60-0.65% 0.25% (2 Barclays funds)
Real Estate 0.35%-0.60% 0.12% (2 Barclays funds)
Technology 0.50%-0.60% 0.25% (6 Barclays funds)
Utilities Sector 0.60% 0.25%

--
Mark Freeland

Re: Lies, darn lies, and ... expense ratios

"Mark Freeland" <> wrote

> "Ed" <> wrote

>> An important fact: Vanguard is no longer the index fund leader. Barclay's
>> iShares offer more choices and low fees, many lower than those imposed by
>> Vanguard.
>
> "Expenses. This also isn't a close call. [Barclays'] IShares are cheap,
> but [Vanguard's] Vipers are even cheaper. The average iShares ETF has an
> expense ratio of 0.43%. The typical Viper charges less than half that:
> 0.22%. No Viper charges more than 0.28%, and the cheapest of the lot,
> Vanguard Total Stock Market Vipers and Vanguard Large Cap Vipers, exact
> just
> 0.07%, making them the lowest-cost large blend funds available. As with
> its
> traitional funds, Vanguard's mutual fund ownership structure allows it to
> deliver services at cost. Meanwhile Barclays bakes into iShares' expense
> ratios the price of marketing to financial planners and advisors."

I think you know that I'm comparing ETF's to Vanguard traditional funds. If
you throw in the Vipers, which offer very limited choices when compared to
Barclay's, then add the open-end funds, what would the average expense be?
We already know that the choices at iShares is still far and away superior
to Vanguard.

Viper sector ETF's would be better compared to Select Sector SPDR's. Each
have expenses of about 25bp. Who needs Vanguard?

Re: Lies, darn lies, and ... expense ratios

On 8/10/05 2:33 PM, Ed wrote:
> "Jim Davidson" <> wrote in message
> news:
>
>>On 8/9/05 5:30 PM, NoEd wrote:
>>
>>>Vanguard is a "rip off" for small accounts. I didn't know there was a
>>>purchase fee. I have my son's college fund there, but I have all my
>>>money at TD. I have to get the time to move to Scottrade.
>>>
>>>
>>>"Ed" <> wrote in message
>>>news:
>>>
>>>
>>>>"NoEd" <> wrote in message
>>>>news:
>>>>
>>>>
>>>>>Also,
>>>>>
>>>>>I don't think most/any of these reported expense ratios include trading
>>>>>costs and taxes. If they did, expense ratios would be much higher.
>>>>
>>>>I know what you mean. How could they include taxes in the expense ratio?
>>>>Check this out:
>>>>
>>>>Let's say you have $3,000 in an IRA and the fund is Vanguard Emerging
>>>>Markets Index Fund.
>>>>Expenses:
>>>>0.48% annual
>>>>0.5% purchase fee.
>>>>0.5% redemption fee.
>>>>$2.50 per quarter account maintenance fee until you have $10,000
>>>>$10.00 per year IRA custodial fee.
>>>>$10.00 per year low balance fee if balance dips below $2,500
>>>>Now add your:
>>>>Trading fees and taxes (?).
>>>>
>>>>
>>>>iShares Emerging Markets Index Fund:
>>>>0.75% annual
>>>>
>>
>>Actually, it looks like the Vanguard and iShares funds cost about the
>>same.
>>
>>Vanguard charges purchase and redemption fees. On a $3k account, this
>>amounts to a total of $30, about what you'd pay for a round trip via most
>>brokers.
>>
>>Vanguard charges about 1/4 pt less in expenses, which roughly offsets the
>>$10/yr account maintenance fee.
>>
>>There *may* be an IRA custodial fee (depending on other holdings), but
>>there's no low-balance fee in an IRA.
>>
>>Overall, it's pretty much a wash, IMO.
>>
>>Bottom line is that it's better to have a larger account, and to hold the
>>investment awhile. Not surprising.
>>
>>-Jim
>
> Jim, you missed the 0.5% in and 0.5% out of the fund.
> This alone could make the expenses higher depending on how long you own the
> fund. No matter how long you own it that 0.5% sales charge/load will be
> waiting for you. I know, I know, it's not a load because the money goes to
> the fund. If you're leaving the fund you shouldn't care where it goes, it's
> a sales charge to you.
>

No, I didn't miss anything.

As I said in my message, Vanguard's charges (0.5% each way) are roughly
comparable to the brokerage commissions that you have to pay to buy/sell
the iShares.

-Jim

Re: Lies, darn lies, and ... expense ratios

"Jim Davidson" <> wrote

> No, I didn't miss anything.
>
> As I said in my message, Vanguard's charges (0.5% each way) are roughly
> comparable to the brokerage commissions that you have to pay to buy/sell
> the iShares.
>
> -Jim

$10,000 purchase.
In, Vanguard $50, Scottrade $7.
Out, Vanguard $50*, Scottrade $7.
Yup, you're right.

*More if you made money, less if you didn't.
AND the $50 goes into the fund.

Re: Lies, darn lies, and ... expense ratios

On 8/11/05 2:20 PM, Ed wrote:
> "Jim Davidson" <> wrote
>
>
>>No, I didn't miss anything.
>>
>>As I said in my message, Vanguard's charges (0.5% each way) are roughly
>>comparable to the brokerage commissions that you have to pay to buy/sell
>>the iShares.
>>
>>-Jim
>
>
> $10,000 purchase.
> In, Vanguard $50, Scottrade $7.
> Out, Vanguard $50*, Scottrade $7.
> Yup, you're right.
>
> *More if you made money, less if you didn't.
> AND the $50 goes into the fund.
>

Wrong again.

You didn't read the original message from Ed (hey, that's you :-), which
said:

> Let's say you have $3,000 in an IRA and the fund is Vanguard Emerging
> Markets Index Fund.

At $3,000, the commission in each direction is a whopping $15. Yeah,
maybe you can get the brokerage commission down to $7 (or maybe you use
a more expensive broker). Either way the difference isn't particularly
significant.

If you assume a larger amount, Vanguard's purchase/redemption fees are
larger, but some of the other fees that you mentioned go away. Someone
who holds the fund longer than a year or two is mainly concerned with
the yearly fund expenses. Vanguard has a .27% advantage here, which
makes them a cheaper bet after a few years (funds in IRAs are usually
held longer than that).

-Jim

Re: Lies, darn lies, and ... expense ratios

"Jim Davidson" <> wrote

>> $10,000 purchase.
>> In, Vanguard $50, Scottrade $7.
>> Out, Vanguard $50*, Scottrade $7.
>> Yup, you're right.
>>
>> *More if you made money, less if you didn't.
>> AND the $50 goes into the fund.
>
> Wrong again.
>
> You didn't read the original message from Ed (hey, that's you :-), which
> said:

Ok, I'm old, memory is gone.

> > Let's say you have $3,000 in an IRA and the fund is Vanguard Emerging
> > Markets Index Fund.
>
> At $3,000, the commission in each direction is a whopping $15. Yeah,
> maybe you can get the brokerage commission down to $7

Scottrade charges $7, no "getting it down".

> Either way the difference isn't particularly
significant.

If we're talking about expenses, then it is significant. Vanguard gets 114%
more than Scottrade.
Is that not significant?

> If you assume a larger amount, Vanguard's purchase/redemption fees are
> larger, but some of the other fees that you mentioned go away. Someone
> who holds the fund longer than a year or two is mainly concerned with the
> yearly fund expenses.

Not true. The 0.5% in and 0.5% out never go away. The annual expenses never
go away.

> Vanguard has a .27% advantage here, which makes them a cheaper bet after a
> few years (funds in IRAs are usually held longer than that).

They have no advantage at all. If you believe they do then Vanguard is the
place for you.
I agree that people tend to hold funds longer in an IRA but it's just what I
think I have no proof.
We are talking about emerging markets here though and I'd like some kind of
reference that these are generally held longer in an IRA, I can't find one.

Re: Lies, darn lies, and ... expense ratios

On 8/11/05 3:38 PM, Ed wrote:
> "Jim Davidson" <> wrote
>
>
>>>$10,000 purchase.
>>>In, Vanguard $50, Scottrade $7.
>>>Out, Vanguard $50*, Scottrade $7.
>>>Yup, you're right.
>>>
>>>*More if you made money, less if you didn't. AND the $50 goes into the fund.
>>
>>Wrong again.
>>
>>You didn't read the original message from Ed (hey, that's you :-), which
>>said:
>
>
> Ok, I'm old, memory is gone.
>
>
>>>Let's say you have $3,000 in an IRA and the fund is Vanguard Emerging
>>>Markets Index Fund.
>>
>>At $3,000, the commission in each direction is a whopping $15. Yeah,
>>maybe you can get the brokerage commission down to $7
>
>
> Scottrade charges $7, no "getting it down".
>
>
>>Either way the difference isn't particularly significant.
>
> If we're talking about expenses, then it is significant. Vanguard gets 114%
> more than Scottrade.
> Is that not significant?

At a whopping $16 one time fee, I wouldn't lose a lot of sleep over it.

>>If you assume a larger amount, Vanguard's purchase/redemption fees are
>>larger, but some of the other fees that you mentioned go away. Someone
>>who holds the fund longer than a year or two is mainly concerned with the
>>yearly fund expenses.
>
>
> Not true. The 0.5% in and 0.5% out never go away. The annual expenses never
> go away.

I meant that some of Vanguard's other fees go away. We're left mainly
with purchase/redemption and annual expenses, which makes comparison to
iShares easier.

>>Vanguard has a .27% advantage here, which makes them a cheaper bet after a
>>few years (funds in IRAs are usually held longer than that).
>
>
> They have no advantage at all.

Huh? Once again, you're not remembering your own post. You said:

> Vanguard Emerging Markets Index Fund.
> Expenses:
> 0.48% annual
............

> iShares Emerging Markets Index Fund:
> 0.75% annual

That's a .27% annual advantage for Vanguard. As you yourself said (a
few lines above :-), "The annual expenses never goes away."

But, let's run a sample scenario. Suppose we're going to put
$3,000/year into an IRA, for a total of 5 years, at which time we cash out:

Total fees:

Vanguard:
Annual fee: $216.00
Purchase/redemption: $150.00
IRA fee: $ 50.00
Total: $416.00

iShares:
Annual fee: $382.50
Commission (Scottrade): $ 70.00
Total: $452.50

Looks to me like Vanguard wins.

Under other scenarios, iShares may win. I'm just pointing out that it's
ludicrous to say that, "Vanguard has no advantage at all".

-Jim

Re: Lies, darn lies, and ... expense ratios

"Ed" <> wrote in message
news:
>
> "Mark Freeland" <> wrote
>
> > "Ed" <> wrote
>
> >> An important fact: Vanguard is no longer the index fund leader.
> >> Barclay's iShares offer more choices and low fees, many lower than
> >> those imposed by Vanguard.
> >
> > "Expenses. This also isn't a close call. [Barclays'] IShares are
cheap,
> > but [Vanguard's] Vipers are even cheaper. The average iShares ETF
> > has an expense ratio of 0.43%. The typical Viper charges less than
> > half that: 0.22%. No Viper charges more than 0.28%, and the
> > cheapest of the lot, Vanguard Total Stock Market Vipers and
> > Vanguard Large Cap Vipers, exact just 0.07%, making
> > them the lowest-cost large blend funds available. As with its
> > traitional funds, Vanguard's mutual fund ownership structure allows it
> > to deliver services at cost. Meanwhile Barclays bakes into iShares'
> > expense ratios the price of marketing to financial planners and
> > advisors."
>
> I think you know that I'm comparing ETF's to Vanguard traditional
> funds you throw in the Vipers, which offer very limited choices when
> compared to Barclay's, then add the open-end funds, what would the
> average expense be?

As we've discussed before, Vipers *are* Vanguard's traditional funds, just
one of many different share classes available. Just as you would not
recommend B shares (assuming they were more expensive) to someone looking at
a load fund, I would not expect you to recommend a more expensive Vanguard
share class, either.

"Vanguard offers four fund share classes: Investor Shares ... Admiral (TM)
Shares ... VIPER(R) Shares ... Institutional Shares."


Nevertheless, I'll be glad to average what you call the "open-end funds"
(you mean share classes), limited to all of Vanguard's index funds only
(since you are talking about ":index fund" leaders).

Remember, though, that my point in starting this thread is that people toss
numbers around without knowing what they represent. So the average below is
computed honestly (i.e. I'm not making up any figures, source is Vanguard
website, it is an accurate calculation), and AFAIK I'm using the same method
as is often used when computing the average expense of a number of funds.
But I think you'll find that it isn't particularly meaningful.

The average is: 0.179%
- less than the average expense of the VIPER shares (at least the figure
that Morningstar gave).

> We already know that the choices at iShares is still far and away
> superior to Vanguard.

Certainly iShares offers more types of indexes, so it is superior in number.
But let's think about what "superior choices" means. Does iShares offer
choices that are better than the corresponding Vanguard choices? Do they
perform better? Are they based on better indices?

I've posted in the past that Vanguard is willing to diverge from "perfect"
tracking (e.g. timing the purchase of companies added to an index to avoid
the premium incurred on the day companies are added), while Barclays is not.
That translates into better performance (though poorer tracking). Is that
superior? I think so, but it depends on whether your definition of superior
says that tracking is paramount.

> Viper sector ETF's would be better compared to Select Sector SPDR's.
> Each have expenses of about 25bp.

Why would this be a better comparison? Are you suggesting that SSgA may be
the "index leader"? By the way, you do know that every one of the Select
Sector SPDRs charges over 25bp, while no VIPER does? Or that they include a
12b-1 fee (what could this get spent on?) that could triple next year?


If you are considering SSgA as the "index leader", then you should also be
looking at their StreetTracks, Diamonds, and SPY. The cost comparison
isn't even close (perhaps you should be comparing SSgA and Barclays for
second place in cost).


> Who needs Vanguard?

That's the problem. You try to knock Vanguard even when the numbers don't
support you. What's the lowest cost sector fund? Vanguard (at 12bp), not
Select SPDRs. What's the lowest cost large blend fund? Vanguard - reread
the Morningstar quote I provided.

But if for large blend, one must have the S&P 500 index, then you will find
lower cost funds elsewhere.

--
Mark Freeland

Re: Lies, darn lies, and ... expense ratios

"Mark Freeland" <> wrote

> But if for large blend, one must have the S&P 500 index, then you will
> find
> lower cost funds elsewhere.

FSMKX 0.10%, VFINX 0.18%
FSEMX 0.10%, VEXMX 0.25%
FSTMX 0.10%, VTSMX 0.19%
FSIIX 0.10%, VGTSX 0.31%

> As we've discussed before, Vipers *are* Vanguard's traditional funds, just
> one of many different share classes available.

You and Vanguard are welcome to call Vipers a 4th share class if you like.
You can't buy them from Vanguard unless you have a brokerage account. They
are creation units, not open-end funds, just like the ETF's that iShares
offer.

Re: Lies, darn lies, and ... expense ratios

"Jim Davidson" <> wrote

> At a whopping $16 one time fee, I wouldn't lose a lot of sleep over it.

It's not a lot but it's also not a one time fee, you pay it each time you
make a purchase, just like the Scottrade commission.

> Vanguard:
> Annual fee: $216.00
> Purchase/redemption: $150.00
> IRA fee: $ 50.00
> Total: $416.00
>
> iShares:
> Annual fee: $382.50
> Commission (Scottrade): $ 7.00
> Total: $389.50
>
> Looks to me like Vanguard wins.

I fixed it for you.

Re: Lies, darn lies, and ... expense ratios

On 8/13/05 1:22 AM, Ed wrote:
> "Jim Davidson" <> wrote
>
>>At a whopping $16 one time fee, I wouldn't lose a lot of sleep over it.
>
>
> It's not a lot but it's also not a one time fee, you pay it each time you
> make a purchase, just like the Scottrade commission.

I meant once for each round trip. I.e., not an ongoing expense. Just
like the Scottrade commission.

>
>
>>Vanguard:
>>Annual fee: $216.00
>>Purchase/redemption: $150.00
>>IRA fee: $ 50.00
>>Total: $416.00
>>
>>iShares:
>>Annual fee: $382.50
>>Commission (Scottrade): $ 7.00
>>Total: $389.50
>>
>>Looks to me like Vanguard wins.
>
>
> I fixed it for you.

Huh? Are you intentionally making these mistakes, or just trying to see
if we're paying attention?

Actually, you did catch one error, but your revised version is farther
from the correct total than mine was.

Let me spell it out, in short words.

I said:

> Suppose we're going to put $3,000/year into an IRA, for a total of 5
> years, at which time we cash out:

Under that scenario, we make a total of 5 purchases, one redemption at
the end.

Using Vanguard, total fees come to $416, as shown.

Let's compute the iShares/Scottrade fees:

Annual fee: $382.50
Commission (Scottrade): $ 42.00
Total: $424.50

Remember, we had 5 purchases (@ $7) and one sale (@ $7). Total
commission is $42, and total fees are $424.50.

Again, looks to me like Vanguard wins.

-Jim

Re: Lies, darn lies, and ... expense ratios

"Jim Davidson" <> wrote in message
news:
> On 8/13/05 1:22 AM, Ed wrote:
>> "Jim Davidson" <> wrote
>>
>>>At a whopping $16 one time fee, I wouldn't lose a lot of sleep over it.
>>
>>
>> It's not a lot but it's also not a one time fee, you pay it each time you
>> make a purchase, just like the Scottrade commission.
>
> I meant once for each round trip. I.e., not an ongoing expense. Just
> like the Scottrade commission.
>
>>
>>
>>>Vanguard:
>>>Annual fee: $216.00
>>>Purchase/redemption: $150.00
>>>IRA fee: $ 50.00
>>>Total: $416.00
>>>
>>>iShares:
>>>Annual fee: $382.50
>>>Commission (Scottrade): $ 7.00
>>>Total: $389.50
>>>
>>>Looks to me like Vanguard wins.
>>
>>
>> I fixed it for you.
>
> Huh? Are you intentionally making these mistakes, or just trying to see
> if we're paying attention?
>
> Actually, you did catch one error, but your revised version is farther
> from the correct total than mine was.
>
> Let me spell it out, in short words.
>
> I said:
>
>> Suppose we're going to put $3,000/year into an IRA, for a total of 5
>> years, at which time we cash out:

....that's fine, but I said, "$10,000 purchase", not 5 purchases and one
sale.

anyway.... 5 $3,000 buys at Vanguard would cost $75. For the first 3 years
there would be a $10 fee for another $30. The first year there would be a
maintenance fee of $10. Using your numbers the annual fee would be $216
(this assumes that the fund makes or loses no money) then $75 for selling
shares.

$75 + $30 + $10 + $216 + $75 = $406

Scottrade would be $42 for 6 trades and $337.50 in annual fund fees. Total
$379.50

Vanguard $406.00
Scottrade $379.50

> Remember, we had 5 purchases (@ $7) and one sale (@ $7). Total commission
> is $42, and total fees are $424.50.

I don't know where you got the $424.50 from. The annual expenses for the
iShares fund are 0.75%.