Index fund decision: Vanguard or Fidelity Target Retirement

[DeathDonkey]

OK, I have my SE 401(k) through Fidelity, Vanguard does not offer what I wanted. I have a Roth IRA through Vanguard and own their Target 2045 Retirement Index Fund and am very happy with that and to leave the decisions out of my hands.

I just contributed my 2006 amount to my new Fidelity 401(k) and now need to decide what to invest it in: I can invest it for no upfront fees in Fidelity's Freedom 2045 Fund (FFFGX). It has an expense ratio of ~0.70%. Alternatively, I can invest in Vanguard's Target Retirement 2045 Fund (VTIVX) which has an expense ratio of 0.21% but I must pay a $75 online processing fee.

I am very new to this stuff, but the Vanguard one seems clearly better looking at the difference in expense ratios for only a $75 fee, I think I should go with that one. Just wanted to check here to make sure my thought process is sound and if anyone knows of a good reason to prefer one of these target retirement funds over the other I'd love to hear it.

Thank you,
DeathDonkey

[Jeff W]

FWIW, you can surely build a comparable asset allocation with a lower expense ratio and w/ likely v. similar performance using Fidelity Funds:

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Vanguard Target Retirement 2045 Fund (VTIVX)

Allocation To Underlying Funds as of 02/28/2007
Ranking By Percentage Fund Percentage
1 Vanguard Total Stock Market Index Fund 71.9%
2 Vanguard European Stock Index Fund 10.4%
3 Vanguard Total Bond Market Index Fund 10.2%
4 Vanguard Pacific Stock Index Fund 4.8%
5 Vanguard Emerging Markets Stock Index Fund 2.7%
Total — 100.0%

[/ QUOTE ]

Fidelity has a solid Total Market Fund and International Fund. I'm sure they have a bond fund too. They don't have an Emerging Markets fund, but the 2.7% is trivial anyway.

[gull]

The Vanguard Target Retirement fund is clearly better than the Fidelity fund. The $75 may be worth it depending on your investment sum and time-frame. Jeff W brings up a good point: you may be able to duplicate the Vanguard Target Retirement Fund with Fidelity funds. Fidelity's Spartan funds are comparable to Vanguard's funds - they are also extremely cheap. In fact, FSIIX (foreign) and FSTMX (total US) are better than the corresponding Vanguard funds in tax-deferred accounts.

[mo42nyy]

so fidelity doesnt charge at all if you buy their own index funds?

[DeathDonkey]

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so fidelity doesnt charge at all if you buy their own index funds?

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This is correct.

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In fact, FSIIX (foreign) and FSTMX (total US) are better than the corresponding Vanguard funds in tax-deferred accounts.

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Can you briefly explain why this is? Is it just a lower expense ratio?

Jeff, thanks for the advice, I will probably do that. My concern is down the road when my Vanguard fund changes its' allocations to adjust for less risk tolerance or any decent-sized change, I'll have to either make my own investing decisions or have to find similar funds to match if I want to approximate that fund and that takes time and effort.

-DeathDonkey

[Jeff W]

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In fact, FSIIX (foreign) and FSTMX (total US) are better than the corresponding Vanguard funds in tax-deferred accounts.

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Is it just a lower expense ratio?

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Yes.

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Jeff, thanks for the advice, I will probably do that. My concern is down the road when my Vanguard fund changes its' allocations to adjust for less risk tolerance or any decent-sized change, I'll have to either make my own investing decisions or have to find similar funds to match if I want to approximate that fund and that takes time and effort.

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It takes time and effort but not an unseemly amount and it adds .11%+Transaction Fees to your return. In the future, I think the only thing that will change with the Vanguard fund is the percentages allocated to the funds it's invested in--not the selection of funds. Annual rebalancing should be fine.

[Dazarath]

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Fidelity has a solid Total Market Fund and International Fund. I'm sure they have a bond fund too. They don't have an Emerging Markets fund, but the 2.7% is trivial anyway.

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There's FEMKX, but I don't think it's an index fund.

[DeathDonkey]

Ok, thanks again Jeff, I thought about it another day and it wouldn't be the worst thing if I learned some basics, at least enough to rebalance each year as you said.

I am going to meet with a Fidelity person at one of their local offices this week, since it's free, though I'll be wary of them trying to put me in higher commission funds or anything like that. Then I'll probably do something like 70/30 FSTMX / FSIIX and leave it alone.

Thanks,
DeathDonkey