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Index Fund Investing: VFINX vs. FUSEX

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  • Index Fund Investing: VFINX vs. FUSEX

    I'm a beginner investor looking to get started with an S&P 500 index fund. The two that appeal to me the most are Vanguard's VFINX and Fidelity's FUSEX, but I'm having a hard time choosing between them.

    - This would be a non-retirement, medium-term investment of around $10,000 initially.

    - Performance-wise, FUSEX has been doing very slightly better over the last 10 years (6.99% vs 7.03%).

    - FUSEX has an exchange ratio of 0.10% while VFINX's is 0.17%.

    - Neither has an account service fee for balances above $10,000.

    Right now I'm leaning towards FUSEX, though I still have some general questions that I can't seem to find answers to:

    1) What other types of fees are generally associated with index funds or these specific index funds?
    2) Are there fees for additional investments or withdrawals?
    3) Tax is paid on withdrawal?

    Thanks for any advice!

    Edit: Vanguard's mutual fund comparison tool shows that VFINX actually outperforms FUSEX in terms of performance after taxes on distributions and sales of fund shares. How does that work?
    Last edited by powpowpowlll; 01-23-2013, 07:09 AM.

  • #2
    Originally posted by powpowpowlll View Post
    I'm a beginner investor looking to get started with an S&P 500 index fund. The two that appeal to me the most are Vanguard's VFINX and Fidelity's FUSEX, but I'm having a hard time choosing between them.

    - This would be a non-retirement, medium-term investment of around $10,000 initially.

    - Performance-wise, FUSEX has been doing very slightly better over the last 10 years (6.99% vs 7.03%).

    - FUSEX has an exchange ratio of 0.10% while VFINX's is 0.17%.

    - Neither has an account service fee for balances above $10,000.

    Right now I'm leaning towards FUSEX, though I still have some general questions that I can't seem to find answers to:

    1) What other types of fees are generally associated with index funds or these specific index funds?
    2) Are there fees for additional investments or withdrawals?
    3) Tax is paid on withdrawal?

    Thanks for any advice!

    Edit: Vanguard's mutual fund comparison tool shows that VFINX actually outperforms FUSEX in terms of performance after taxes on distributions and sales of fund shares. How does that work?
    Actually, if you put 10k into Vanguard's S & P 500 fund, you would be buying admiral shares, not investor shares. The ticker is VFIAX and the expense ratio is .05%.

    Q1: At Vanguard, none. I am not familiar with Fidelity, but I suspect none.
    Q2: No.
    Q3: In a taxable account, tax is paid on dividends and capital gains (due to fund turnover) as you go along. Additionally, tax is paid on capital gains due to selling shares (withdrawal).

    ETA: Your edited question. It could be a number of things. Perhaps Vanguard's fund has some capital losses it can use to minimize capital gains. Perhaps Fidelity's fund was forced to generate some short-term gains (higher tax rate) in order to rebalance.

    Over the long-term, the funds should perform nearly identically. So it really boils down to which company would you rather deal with. Either one is a fine choice.
    Last edited by Petunia 100; 01-23-2013, 07:40 AM.

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    • #3
      Ah you're right.

      With $10k to invest, I could be looking at VFIAX (0.05% expense ratio) and FUSVX (0.07% expense ratio). In that case, the performance is pretty much identical besides that expense ratio, which makes Vanguard the quote-unquote "better" choice from a contrived comparison.

      Thank you.

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      • #4
        Originally posted by powpowpowlll View Post
        I'm a beginner investor looking to get started with an S&P 500 index fund. The two that appeal to me the most are Vanguard's VFINX and Fidelity's FUSEX, but I'm having a hard time choosing between them.
        First, the best advice I've read indicates that you're better off investing in the total market, rather than just the S&P 500. Even John Bogle, the founder of Vanguard and the originator of their S&P 500 index fund says that no one should be using it anymore. At Vanguard you should consider instead VTSAX, their total market index fund, with ER of 0.06%.

        I would compare that to FSTVX at Fidelity, with ER of 0.07%, but it is actually capped at 0.06% through April 2014, at least. FSTVX has moderately better Lipper Leader scores, if you put credence into that sort of thing, rather than blindly just looking at ER.

        I have some VFIAX myself and I'll be converting it to a total market fund soon. I'll be deciding whether to move it into VTSAX or FSTVX. Based just on customer service experiences I've had with both Vanguard and Fidelity, I'd choose Fidelity. However, I do like the idea of having what I currently have - about 10% of my investments - in a secondary brokerage (Vanguard) rather than putting everything in one brokerage - for no good reason, really, but that "no good reason" may be enough for me to switch into VTSAX. They're close enough to each other.

        (BTW: VTSAX seems to have been doing quite "well" since December. Meanwhile, FSTVX has done "well" over a longer period. Don't let these small differences sway you one way or the other. They're likely to do just as well as each other over time. You really cannot go wrong choosing one versus the other.)

        Originally posted by powpowpowlll View Post
        1) What other types of fees are generally associated with index funds or these specific index funds?
        FSTVX has a short-term redemption fee of 0.5% (90 days).

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