Vanguard 500 vs Vanguard Total
 

I am having a hard time deciding which one I should be investing in. I found two articles that defend for the Vanguard 500 and Vanguard Total. Also, what is DFA mentioned in the first article? I tried searching for it and got to the IFA.com website? Please clarify.

Pro Vanguard 500: http://www.fundadvice.com/fehtml/bhs...ies/0404a.html

Pro Vanguard Total: http://www.fool.com/News/mft/2004/mft04040811.htm

Re: Vanguard 500 vs Vanguard Total
 

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Also, what is DFA mentioned in the first article?

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From the article...

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Even better for investors is a combination of four Dimensional Fund Advisors institutional index funds that are available exclusively through investment advisors. As I have noted in other articles, when compared with Vanguard funds, DFA offerings are oriented more toward smaller companies and skewed more towards value.

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Link to DFA Website

Re: Vanguard 500 vs Vanguard Total
 

The first article isn't pro-500 it's pro-DFA. But consider the source...the Merriman people are like jively's firm: they only use DFA funds.

Re: Vanguard 500 vs Vanguard Total
 

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The first article isn't pro-500 it's pro-DFA. But consider the source...the Merriman people are like jively's firm: they only use DFA funds.

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Yes, but jively is still capable of recommending Vanguard... [img]/images/graemlins/smile.gif[/img]

The Total Stock Market fund and the 500 fund should have very similar expected returns and risks over long periods of time. The Total Stock Market fund is definitely better because it is more tax efficient, and it doesn't have arbitrage-type traders gaming the addition and deletion of S&P 500 stocks. If you had to have just 1 US stock fund, the Total Stock Market fund is better.

However, you can increase expected return for the same level or risk, or you can lower the risk and keep the same expected return by using multiple funds, including the small cap and value funds, and diversifying internationally. Here is a recent recommendation of a globally diversified portfolio.

-Tom

Re: Vanguard 500 vs Vanguard Total
 

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The first article isn't pro-500 it's pro-DFA. But consider the source...the Merriman people are like jively's firm: they only use DFA funds.

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Buf, DFA is only mentioned in a couple of Merriman's articles... take a look at the recommended port page , and you'll see recommended ports using ETFs, Fidelity, Schwab, T. Rowe Price, Vanguard and Rydex.

One of the more important aspects of FundAdvice, is they use a Timing model to improve performance at reduced risk.

Re: Vanguard 500 vs Vanguard Total
 

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The first article isn't pro-500 it's pro-DFA. But consider the source...the Merriman people are like jively's firm: they only use DFA funds.

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Yes, but jively is still capable of recommending Vanguard... [img]/images/graemlins/smile.gif[/img]

The Total Stock Market fund and the 500 fund should have very similar expected returns and risks over long periods of time. The Total Stock Market fund is definitely better because it is more tax efficient, and it doesn't have arbitrage-type traders gaming the addition and deletion of S&P 500 stocks. If you had to have just 1 US stock fund, the Total Stock Market fund is better.

However, you can increase expected return for the same level or risk, or you can lower the risk and keep the same expected return by using multiple funds, including the small cap and value funds, and diversifying internationally. Here is a recent recommendation of a globally diversified portfolio.

-Tom

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Your recommendations only involve Vanguard? A list composed by "rockrock" (http://forumserver.twoplustwo.com/sh...t=all&vc=1) recommended index funds by iShare and Forward also. I am a newbie so I do not understand the reasoning behind this. Please clarify jively.

Thanks [img]/images/graemlins/smile.gif[/img]

Re: Vanguard 500 vs Vanguard Total
 

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Your recommendations only involve Vanguard? A list composed by "rockrock" (http://forumserver.twoplustwo.com/sh...t=all&vc=1) recommended index funds by iShare and Forward also. I am a newbie so I do not understand the reasoning behind this. Please clarify jively.

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I think Vanguard has normal (open-end) mutual funds, and ETF (closed-end) mutual funds for the same indexes. He just converted my recommendation to ETFs. He also suggested 2 others asset classes (international small and commodities - note check out QRAAX* and DFISX (and DISVX)).

I recommend the normal, open-end mutual funds over ETFs. ETFs trade like stocks, so when you buy them, you have to pay the custodian (like E-trade, Ameritrade, Charles Schwab) a transaction fee for each trade. It might only be $5, but could easily be $20 or more per fund. This definitely is not best if you are saving regularly, maybe saving money each month. With the open-end funds, when the money is held directly by the mutual fund company, there are generally no transaction fees at all.

Plus, ETFs have a bid-ask spread. If the fund's price (NAV) is 61.26, maybe you can buy at 61.26 but have to sell at 61.16 or something like that. You pay a tiny bit more when you buy and lose a tiny bit when you sell. If you are holding a really long time, this is trivial. But if you are saving regularly or rebalancing once a year, you do get a hit a little bit. Plus, the funds with less liquid stocks (like Emerging Markets, or Internation Small Value) have a higher bid-ask spread. Some funds may have a 3% bid-ask spread, where you buy at 61.26 but can only sell for 59.45.

(Some arbitrage traders profit when a bid-ask spread is wide by shorting the ETF and buying the individual stocks in the index. However, with illiquid asset classes, if they buy the stocks they move them up and can't profit from the arbitrage. So, the bid-ask spreads stay wide, and ETF buyers can lose up to 3%.)

-Tom

* Many of the smart people at DFA don't recommend buying commodities, because there is no positive expected value. It is true that the correlations with stocks and bonds are low. However, there is no reason that commodities have a positive return over time. Stocks obviously have a positive expectation because of dividends and growth, and bonds because of the interest paid. Historically there have been positive returns for commodities, but there is no reason to believe it will continue in the future. [I don't want to start inflation arguments with perma-bears in this thread.] Some asset allocation authors, like Roger Gibson , do recommend commodities (with maybe a smaller allocation to real estate stocks). That's fine.

Re: Vanguard 500 vs Vanguard Total
 

jively, I like your thinking in general, but lets not overstate things too much. You're obviously not going to use an ETF that's so lightly traded that it has a huge bid/ask spread, unless you know how to use that to your advantage.

You can also use NTF (no transaction fee) funds in a regular brokerage account, and they usually also have options for no cost automatic monthly investments.

Re: Vanguard 500 vs Vanguard Total
 

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The Total Stock Market fund is definitely better because it is more tax efficient,

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Jively, before I look for it, do you have any specific numbers to share to back up how big this impact actually is?

Re: Vanguard 500 vs Vanguard Total
 

what are risk/rewards of these funds? How does one get started? I dont know anything about funds so any info/links are appreciated.
I still have my lunch money from the third grade [img]/images/graemlins/smirk.gif[/img] and so far all Ive done is a few IRA CDs. I want my FEMA check to go along way lol

Re: Vanguard 500 vs Vanguard Total
 

Total stock market is the most tax effecient mutual fund by definition because it owns the whole market.

RE: commodities - while there is no positive expected value, I don't think that is true for derivatives which PCRIX uses to trade. Also studies show that adding commodities decreases standard devation (one way to measure risk) in a portfolio while only taking away slighty from expected returns.

commodities also a great hedge against geopolitcal risk, specific event risk, unexptected inflation (i.e. katrina), etc.

MPT is pretty clear on size and value - the more of it you have the more risk you are taking but the higher your expected returns.

Re: Vanguard 500 vs Vanguard Total
 

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Total stock market is the most tax effecient mutual fund by definition because it owns the whole market.

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Come on rock, I know you know this isn't true!

There are actually 3757 (as of 1/31) stocks in that fund
It had a turnover rate last year of 12%
Its Cap weighted, so its basically a large cap fund, with the top 10 holding representing 15.7% of asset value.

Vanguard Total Stock Market Holdings

What does tax efficiency have to do with what it owns??

Re: Vanguard 500 vs Vanguard Total
 

Sniper it was late when I wrote that and here is what I meant.

VTSMX uses index sampling to mimic the return of the entire market. Since it remains fully invested and securities theoretically don't go in and out of the index (like any other S&P, Barra, MSCI or any other index) the turnover is extremely low - the fund already owns the equities regardless of their market cap, PE, etc.

This is what I meant by stating it owns the "entire market". When a small cap becomes a mid cap or big cap or microcap, the fund doesn't have to sell the shares, or acquire the shares. It already owns them.

I was trying to find a list of the cap gains paid by the fund through the years. It pays small dividend, but I stand by my statement that among funds that have been around a while, this the most tax effecient equity based mutual fund in the history of the world (save perhaps the rydex or permabear type funds).

Re: Vanguard 500 vs Vanguard Total
 

The answer depends on your overall asset allocation. If this is to be the only domestic equity fund then you need to pick TSM. However, if this fund is meant to represent your large cap exposure, than SP500 is better.

SP500 = 100% large caps

TSM = 70% Large, 20 mid, 10 small .... roughly

-Matt

Re: Vanguard 500 vs Vanguard Total
 

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TSM = 70% Large, 20 mid, 10 small .... roughly -Matt

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Do you have a source for this, I couldn't find one when I did a quick look... I did note that fund holds less than $1,000 worth of some stocks though.