The best way to own the entire stock market in a single fund

Still, it would be a mistake for all indexers to buy this fund (symbol: FZROX). With royalties as low as 0.03% for competitors, the savings would be minimal.

The search for the best total market index fund now depends on other factors. A key element: portability. The new Fidelity Fund is only available to investors who purchase it directly from Fidelity. It costs more to the company than to make investors pay. In other words, it's a leader in losses that can bring customers to the door. "We hope to attract new customers who have not worked with us," said Scott O'Reilly, Fidelity Index Fund Manager.

In contrast, ETFs such as
Vanguard Stock Exchange
(VTI) or
IShares Core S & P US Stock Market
(ITOT) can be exchanged anywhere. Fidelity investors looking for flexibility should buy more
Fidelity Total Market Fund Prime
(FSTVX). Although the expense ratio is 0.015%, it is available at other brokers.

However, mutual fund transaction fees are generally higher than those of ETFs, unless they are on non-trading platform (NTF) platforms. So, for example, at TD Ameritrade, you will pay $ 49.99 to buy or sell mutual funds to companies that have not yet signed a contract to become part of the NTF platform – a cost generally passed on to investors. (Vanguard consistently refuses to pay to be part of the NTF platforms.)

If you are an active trader or just invest regularly, like any paycheck, buying a fund can be the biggest cost to you – 5% on every $ 1,000 transaction. Meanwhile, some exchange-traded funds in the total market are on NTF platforms. The iShares ITOT ETF is listed on five – ETrade, Ally, Fidelity, Vanguard and Firstrade, while Vanguard's VTI is one in three.

There are many other factors to consider: tax efficiency, tracking error relative to the benchmark, liquidity, manager confidence, and the extent of equity coverage of a total market fund. . Although total funds are generally tax efficient, as stocks seldom go out of the benchmark, shareholder buybacks can force managers to sell appreciated stocks for cash. ETFs have an additional advantage in this regard because they offer in-kind redemptions of preferred shares to special institutional investors known as authorized members. This allows the fund to realize taxable gains without having to pay them to shareholders.

Listen to a conversation between Jack Hough and Alex Eule about the volatility of the market in October and why panic (a bit) might go, in a recent episode of The Readback. You can subscribe to the podcast on iTunes or wherever you listen to podcasts.

Yet, Vanguard is a headache in the world of ETFs because its total market, VTI, is legally another class of shares of its mutual fund, instead of being a stand-alone fund. This means that taxable capital gains realized on all of the different classes of market fund units are prorated to each class, including the ETF. While it is unlikely that such distributions will materialize as they would require a massive series of shareholder redemptions, the 41% Vanguard ETF and mutual fund potential for unrealized capital gain is greater than the potential any other large or exchange-traded mutual fund.

Morningstar analyst Ben Johnson has written about this risk, but sees VTI as his preferred total market fund: "This fund has closely followed its underlying benchmark, it has actually recovered its minimus fees through sound portfolio management and securities lending techniques.

Now that total market funds are commodities, investors should focus more on the whole. Here again, Vanguard shines, says Johnson. "Faithfulness [zero fee fund] move is a leader in losses, where they hope to offset the differential with the gap they will accumulate on their cash balances – money and bank accounts, and all they can do to promote their customers, " did he declare. "Subsequently, Vanguard aggressively argued that it had the highest monetary returns of any brokerage platform, trying to make people aware that free pricing did not exist."

That's right, but there is no reason why you can not use Vanguard as a broker, keep your money in its high yield money market funds, but buy a non-Vanguard total market ETF . In fact, Vanguard has facilitated this strategy by allowing virtually all ETFs to freely trade on their own: as BlackRock's ITOT is the best total market ETF than Vanguard's, and arguably the best in its market. together. It is available on a larger number of NTF platforms. Its fees of 0.03% are higher than those of Vanguard at 0.04%. It is less exposed to capital gains and is better structured from a tax perspective.

In addition, since ITOT went from the S & P Composite 1500 index to the S & P total market index in December 2015, it covers almost as many small shares as companies small-cap market than Vanguard. According to Morningstar Direct, ITOT holds 3,401 shares out of the 3,667 shares of Vanguard (the largest of the market ETFs). (Fidelity Zero has 2,508). In addition, since ITOT reduced its expense ratio from 0.07% to 0.03% in November 2015, there is virtually no tracking error with the benchmark, such as Vanguard. Both ETFs are highly liquid: they have close trading spreads and trade only small premiums or discounts to their underlying portfolios. So ITOT wins – by a nose.

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