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Posted by on April 30, 2009, 5:12 am
I had posted earlier asking for the next riskier investment after Bank
CD's. It was suggested I buy Vanguard's Total Bond Market Index
(VBMFX) fund. I have my IRA account with Fidelity and notice they
charge a $75 fee. However, there is also Fidelity U.S. Bond Index Fund
(FBIDX) which has no fee. Is there much difference between the two? I
am looking to invest around $16k .
I assume that all taxes are deferred since I have a SEP-IRA. Are there
any special things I should be aware of when investing in bond index
funds?
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Posted by ps56k on April 30, 2009, 10:26 am
>I had posted earlier asking for the next riskier investment after Bank
> CD's. It was suggested I buy Vanguard's Total Bond Market Index
> (VBMFX) fund. I have my IRA account with Fidelity and notice they
> charge a $75 fee. However, there is also Fidelity U.S. Bond Index Fund
> (FBIDX) which has no fee. Is there much difference between the two? I
> am looking to invest around $16k .
>
> I assume that all taxes are deferred since I have a SEP-IRA. Are there
> any special things I should be aware of when investing in bond index
> funds?
>
when you "go outside" of a fund company,
they charge you a fee....
If you want that specific fund - you can just setup another IRA account with
Vanguard.
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Posted by Mark Freeland on April 30, 2009, 11:05 am
It was suggested I buy Vanguard's Total Bond Market Index
> (VBMFX) fund. I have my IRA account with Fidelity and notice they
> charge a $75 fee. However, there is also Fidelity U.S. Bond Index Fund
> (FBIDX) which has no fee. Is there much difference between the two? I
> am looking to invest around $16k .
There are portfolio differences, but not substantial. They use their own
sampling techniques, but their goals are the same - to track Barclay's US
Aggregate Index.
More significant is the cost. VBMFX at 0.22% costs less than half of what
FBIDX costs - 0.48%. That difference, 0.26%, over the course of two years,
will cost more than the $75 transaction fee you're facing. As far as
additional purchases are concerned, you can make them at Fidelity for
$5/purchase if you tell their system you are making automatic periodic
payments - you only have to do this for one "period", i.e. a single purchase
at a time.
But you can do even better with the Vanguard fund, by purchasing a cheaper
share class of the same fund. Instead of using the Investor Class shares
(VBMFX), use the ETF class shares (BND). You'll pay a stock commission
(about $11/trade), but you'll be getting shares with even lower expenses
(0.14%). If you hold those shares for just 3 months, you'll come out ahead.
Fidelity will reinvest dividends of either share class with no charge.
> I assume that all taxes are deferred since I have a SEP-IRA. Are there
> any special things I should be aware of when investing in bond index
> funds?
Personally, at least for bond index funds, I prefer intermediate term funds
over total market - it seems that the marginally higher interest on long
term bonds doesn't merit the extra risk (credit risk, interest rate risk)
that one is taking with the longer maturities. And the short term bonds
that they hold are more suitable for a short term investing horizon. (I
feel differently about actively managed bond funds, because there, the
manager has the flexibility to eschew the short term bonds and to adjust
maturity/duration as the yield curve shifts.)
Otherwise, just buy the cheapest bond index fund - cheapest meaning total
cost of ownership, including expenses, transaction costs, other fees.
Mark Freeland
nNeEwTs@nyc.rr.com
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Posted by on April 30, 2009, 12:10 pm
nonsense@mynonsense.net writes:
> I had posted earlier asking for the next riskier investment after Bank
> CD's. It was suggested I buy Vanguard's Total Bond Market Index
> (VBMFX) fund. I have my IRA account with Fidelity and notice they
> charge a $75 fee. However, there is also Fidelity U.S. Bond Index Fund
> (FBIDX) which has no fee. Is there much difference between the two? I
> am looking to invest around $16k .
Vanguard has tracked their benchmark a little (tiny) bit better
and has a lower expense ratio (0.20 vs. 0.32). They both track
the same underlying index.
You also have access to Vanguard's ETF version through you
fidelity account for a much lower transaction cost. The
symbol is BND and it's the same fund. Barclay's iShares ETF has
their version of the same one, too, AGG. The ETF versions
have even lower expenses (0.10 and 0.20 respectively).
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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Posted by on May 17, 2009, 6:55 am
On Apr 30, 11:10 am, BreadWithS...@fractious.net wrote:
> You also have access to Vanguard's ETF version through your fidelity account
for a much lower
> transaction cost. The symbol is BND and it's the same fund.
Thanks, I went and bought the Vanguard BND ETF. Fidelity charged $20
commission . I am curious what is the difference between this and the
Vanguard Bond Index Fund which has a $75 fee?
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