AskDong

I just changed my mutual investing tactics going forward, switching from investing in my brokerage to opening a vanguard account and placing all my passive index fund investing with Vanguard.  With that in mind, I decided what to see what other people had to say about Vanguard.

• 2million became a Vanguard Flagship Client. Hopefully someday I’ll achieve that level and get TurboTax for Free.
• Sun asks if owning VISXV is needed when VTMSX is already owned. VTMSX is the total stock market index fund, and VISXV is the small cap index fund.
• The Dividend discusses the Vanguard Dividend based funds.
• My Money Blog, a client of Vanguard’s, tells us that Vanguard is a leader in client loyalty. Looks like I won’t be switching my money out.
• FIRE finance let’s us know what we can do to get the annual $20 account fee from Vanguard wavied
• ML from Investing the Middle Way Askks, “Which Index Fund”. This is not article on Vanguard per se, and is also bit on the technical side, but it’s fascinating read for those inclined. Most importantly the articles tells us how some index funds manage to consistently beat the index (which at first thought might seem like the the antithesis of index fund investing)

I’ve been very lucky in the last few years to have a great 401k plan at work with generous matching, and a great stock market to put my funds into. The market since the lows of 2002 have been on steady and uninterrupted climb up. I lost money 1999-2002, but since I was straight out college I didn’t have all that much money to lose. Sometimes timing is everything. I’ve been very fortunate to have had a great stock market to coincide with the ability to put more into my 401k. I’ve been able to max out my contribution the last few years. I thought it would be an interesting comparison to look at my 401k in comparison to S&P 500 Index, and a hypothetical account consisting of only contributions. I’ve normalized everything to value of $1 from when I started tracking in Sept. 2003.

What’s clear is that having a well performing 401K account is not just a function of having a great stock market, nor is just a function of making contributions. Both are equally important. However, at the early stages of savings, contributing is much more important than what the market does. In 10 years this chart should look very different. Hopefully it’ll look different in a good way and not just because everything point down instead.

Over a month and half ago, I stated that I was performing an audit on my time. Having time is very important to me as I generally much rather waste money than waste time. I finally got around to putting all the data together, and looking at how I actually spend my time. It’s not a pretty picture. However, I engaged the exercise because I didn’t think I would like what I found.

I spend over 65% of time either sleeping, working or commuting. Of those three things, I only really enjoy sleep, and even there it’s not something I want to devote my time towards. If I exclude sleep, I spend nearly 50% of my waking hours working and commuting. If you’re going to spend half your time doing something, you should enjoy it.

After accounting for the time that I have less control over; sleeping, working, and commuting, I’m left with a little over 8 hours each day to do with what I may. This 8 hours is an average of 8 across every single day, including weekends. 8 hours is not a lot. Nearly on whole hour is taken up by mundane routine tasks such as brushing my teeth, taking showers, getting dressed, and eating. In my eating category I’ve only included meals that I eat alone (or at my desk at work), the rest of my eating is lumped in with socializing as that’s what I’m really doing.

Having cataloged my time, the exercise has only reaffirmed my value of time over money. I really don’t have as much time as I want. Looking at the table, I see not only where I spend too much time (work, commuting, and sleep), I also see where I want to spend more time (relaxing, sports, personal work, blogging, socializing). I feel time constrained much of the time, and I hardly engage in sports activities (including the Gym) that I both want to and know would be good for me. I look at pie and don’t really see much I can squeeze time from. The only thing glaring is how much I sleep. I’m in bed for nearly 8.5 hours a day. I think that’s alot, but I do enjoy it so.

I came across Donors Choose over at Consumerist Commentary who is working with pfblog.org to help promote select projects. While the specific campaign sponsored by pfblogs is aimed at financial literacy, there are tons of different types of projects to fund. I absolutely love the concept and will be adding it as a regular part of this blog. I have many friends who are either currently teachers or have been teachers in the past. They have one the most difficult and important jobs out there and reap relatively little in terms of financial rewards. And on top of that, they often have to purchase school supplies out their own pocket, and only the first $250 is deductible. I know plenty of teachers who spend much more than $250 of their own money on making sure their kids have the proper tools to learn (sometimes this is simply having pencils and notebooks). To add insult to injury, apparently Congress has yet to vote to extend the law that allows for this deduction.

My plan is every month to issue a challenge to which I will personally contribute a minimum of $25 towards. I’ve started this month with one project in my home state of Massachusetts, and challenge of $100. The project is to secure funds for the purchase of musical instruments for young children. While I’m hardly musically inclined myself, I firmly believe that music (and the arts in general) are an important part of education that too often is the first to get cut. Hopefully if these challenges are successful, I will sponsor challenges with many different projects.

I also want to take some time and acknowledge some of my inspiration besides Flexo at Consumerism Commentary. Nickel of Five Cent Nick impressed me with a very generous offer to match $1000 from readers who gave to the Conservation Fund. In general, I was inspired by all the blogs that participated in Blog Action Day. I was reminded not all of us personal finance bloggers are just bunch of skinflints who only care about our networth. Also, I’ve been plowing through the life of Chuck Feeney whho is certainly an inspiration to give back. Click on the graphic on the left to contribute to the challenge. Going forward I will be adding a challenge graphic as standard part of the blog.

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.