Investing - Bank vs. Fidelity/Vanguard

amother

Sun, Mar 22 2015, 3:55 pm

I am no expert but here is what I've done:
I invest, among other places, in Vanguard 500 Index Fund. It is intended to match the S&P 500. Over time, it has done great b"h, but as they say, past performance is no indication of future results.
They are low fee.
Among low cost investment firms - I don't think there is much difference between their index funds. I have similar investments with Schwab as well.
I don't know how fees exactly compare between Vanguard, Schwab, Fidelity and others.

Google showed this
http://www.brokerage-review.co......aspx

Mrs Bissli

Sun, Mar 22 2015, 4:28 pm

I think doctorima and the amother above me answered well. Banks do not manage your money themselves, but take a cut from your money (as a commission) and let another fund managers invest your assets. That's why they tend to have higher fees and have limited offerings.

There are two types of funds: tracker funds (aka passive funds) which basically aim to mimick performance of overall stock market. So their job is to have similar allocation between their portfolio and overall market (eg let's say if S&P500 index consists of 15% oil & energy and 10% retail, and retail part of index includes Amazon/Best Buy/Gap/Macy's/TJX, they'll try to copy same weighting and name selection). These are cheaper to run because you don't have to hire expensive analysts and portfolio managers, but they are unlikely to outperform the market (but not expected to underperform either).

The other types are actively managed funds, whose aim is to 'beat the market' over a long period of time. Such funds believe it is possible to screen good performing companies and select them in their portfolio. Because this involves more professionals doing stock selection and monitoring, they have higher fees but are generally believed to outperform. (for one, you can call Warren Buffet is a highly selective active manager).

Vanguard is known for low-fee tracker funds. Fidelity is a much larger fund manager with pretty wide offerings.

As for customer service, I'm not sure exactly what you mean. I think Fidelity still has some branches, though there's really no need to use them. (Note having actual branches mean higher operating costs to funds, which they'll need to pass onto investors). I have an account with Schwab, they also have branches (or used to) but I only use them for execution only (ie I choose stocks myself, just use them to sell/buy my orders.) and I do that entirely online.

cookiecutter

Sun, Mar 22 2015, 5:35 pm

To summarize: most mutual funds attempt to "manage" your money by selecting particular stocks. They pay" experts" lots of money to pick stocks which means you have to pay a proportion of your investment to them. For a variety of reasons it is likely impossible to "beat the market" , I.e. to have better than average returns over an extended period of time. Even if it is possible to achieve it is impossible for a lay observer to distinguish the funds that are fundamentally better from the ones that are simply bearing greater risk.
The solution is to buy index funds. Index funds are designed to match a particular market rather than beat it. Because index funds match a predetermined market index they do not take large fees for picking stocks. Lay investors are almost always better served choosing index funds for those reasons.

esther09

Sun, Mar 22 2015, 9:45 pm

doctorima wrote:

If you want cheap and no-frills go with Vanguard. If you want to have a little more hand-holding, go with Fidelity. But be careful and don't let them talk you into paying them to do what the bank wanted you to pay them to do. Fidelity also offers portfolio advisory services, but you can just put together your own collection of their index funds (which are essentially as good as Vanguard's), and shmooze with them on the phone (or in person if you prefer) to get a few pointers.

How do I avoid this (bolded)? We really do want to go in, sit down, and have a conversation with a person IRL, instead of just doing it online. I understand it may come with a premium - will it be more/less than the bank? Even if it's the same, from what I'm reading above, it seems what I would get from Fidelity vs. the bank would be better, so it may be worth it if the fees are the same?

rosehill

Mon, Mar 23 2015, 6:35 pm

esther09 wrote:

Thank you all so much for all of your help! It really gave me a lot to think about. I am going to go with Fidelity or Charles Schwab instead of the bank as Vanguard seems to not have offices (am I wrong?) and like I mentioned, as first time investors, we need some hand-holding.

How do I avoid this (bolded)? We really do want to go in, sit down, and have a conversation with a person IRL, instead of just doing it online. I understand it may come with a premium - will it be more/less than the bank? Even if it's the same, from what I'm reading above, it seems what I would get from Fidelity vs. the bank would be better, so it may be worth it if the fees are the same?

I'm wondering if there's such a thing as a financial planner who collects a fee, but doesn't sell products? It seems like that's what you need. With a broker, it's hard to know if they're selling you something that's in your best interests or their own.
Perhaps you could ask your CPA for a recommendation?

Amarante

Mon, Mar 23 2015, 8:29 pm

rosehill wrote:

There are financial planners who work for a fee - some work hourly and some for a percentage of the amount they are managing. Like any professional, their competence varies so before selecting one, make sure you do your due diligence. Even personal recommendations aren't necessarily valuable because, unfortunately, many people make recommendations to people who aren't competent or honest. Think of all the people who were recommended to Bernie Madoff :-(.

Some people use a financial planner to help them think about getting their finances in order - I.e. do you have money for emergencies; do you have money in IRA/SEP? Are you saving in a 529 plan for your children's education. A lot depends on your stage in life. So you use them for an initial consultation and maybe some follow ups rather than using them to manage your money/investments totally.

I would suggest before you "invest" anything you educate yourself in the basics. There are some very simple books like Investing For Dummies - or even websites like Fidelity have on-line articles on basic stuff. I do trust "professionals" but I also think knowing something about a subject helps you whether it's a visit to a doctor, lawyer or financial planner. Then when you finally do speak to someone, you can ask intelligent questions about why they are recommending certain investments.

In the meantime you can park your money in a CD while you figure out a plan. It's not a great return but if it's through a bank, it's protected by FDIC your money won't go down and six months from now, you would be ready to make a more informed investment decision.

Others have given you good advice regarding getting a no-load stock index fund from Vanguard or Fidelity. But you really should at least read enough on investing to understand why these are prudent investments. And of course, depending on your stage in life, your portfolio might change - e.g. people in retirement often have more bonds than stocks because these are less volatile although they also have less growth potential. If you are younger, you want more potential growth because you also have more time to recover if the market goes down.

Without knowing the specifics of your finances, it's hard to recommend more. Now is also the time to see if you should be making contributions to your Roth Account, IRA or other tax deferred account since you can do so for 2014 until April 15.