A few months ago E*Trade eliminated their 12b-1 refund program. 12b-1 fees are marketing fees charged by Mutual Funds. These are basically monies paid to brokerages for selling their mutual fund. Sounds awfully like a kickback.  I’ve been investing in WFIVX, an Index Fund based on the Wilshire 5000 which in turn is an index of the entire U.S. stock market.  At E*Trade buying and selling WFIVX is a free, and the rebate made the fund somewhat more competitive with some of the more popular low cost total market index funds such as VTSMX (Vanguard), POMIX (T. Rowe Price), and FSTMX (Fidelilty).  None of those other funds are free to trade on E*Trade. Some like POMIX is not even offered. I had hoped to keep all my investments consolidated within E*Trade, but on further review I decided it would be imprudent of me to continue to do so. I’m being bled dry by WFIX, relatively speaking. Below is a table of the respective expense charges.  Expense charges ares expressed in percent terms, so an expense ratio of .5 is equal to .5% or .005.  Expense charges are charged annually as a percentage of the fund investment.  A 1,000 investment will be charged $5 every year (more as it grows) if a .5 expense ratio applies.


All numbers are courtesy of Morningstar.com. The Vanguard Admiral class shares are offered those investing more than 100k, and investors with a long client history with Vanguard.

When it comes to index funds, it’s all about lowering costs.  You’re not paying for sage investment advice or performance. You’re paying for someone to accomplish a predetermined task cheaply and efficiently.  While in the past I’ve derided ever so slightly some Vanguard adherents who don’t believe at all in individual stock picking, I’ve always been a admirer of Jim Bogle’s company and his consumer advocacy.  As a company Vanguard does a tremendous of job of keeping it’s fee’s low, though some feel that company has lost it’s way somewhat.  Despite the criticsm, and the slightly lower expense ratio of the Fidelity Spartan Total Market Index (FSTMX), I’ve decided to finally pony up and open a Vanguard account. Vanguard offers a wider selection of index funds at lower costs than Fidelity overall, and I am as interested in international funds and bond funds.  Also, someday I hope to be eligible for the Admiral class shares.  The fact is that Fidelity and Vanguard have been engaged in a price war, and it’s still unclear in the long run who will be cheaper.  All I know is price wars are great for consumers.

The benefit I’ll see by diverting my index fund investments towards Vanguard is quite substantial.

Over the course of 15 years, I will be around 3,000 better on 10,000 investment by investin at Vanguard instead of WFIVX. This free money on the table, that I need to take off. As of last week I’ve stopped adding to my monthly investment in WFIVX. The question now is how and when should I sell my shares of WFIVX and exchange them for Vanguard funds.