Pension charges - !!!!!!!

bostonerimus

Low turn over is another reason to use index funds, Vanguard's Total Stock Market Index fund has a turn over of 4% which helps to keep costs down to ER=0.04% and tracking error of 0.02%. But we are arguing about how many angels can fit on the head of a pin. The OP, and every investor, should be aware of fees and understand what they can do to the value of a portfolio. I think too many go out looking for advice end up paying too much for far too little without ever knowing it. Too often people seem to think they can buy performance and with a combination of advisor, platform and fund fees they end up paying considerable recurring amounts that I believe iare a bigger drag than necessary on their financial plan. It's even worse when they have to pay this fee when they are losing 10% or 20% of their pot and even worse again if they are in drawdown.

[Deleted User]

dunstonh said:

I don’t know what’s required but transaction charges are disclosed in the US. 

No they are not.   Apart from other independent sources, here is what Vanguard say:



in the UK/EU, those costs are included and disclosed on investments captured by MiFIDII and the insurance directive ( which includes pension funds)

Don't care about "requirements".  In the real world I have not seen a single product in the US which does not report expense ratios.  Expense ratios include operating fees, administrative fees and management fees.  In the US expense ratios include “other fees” which cover the costs you are talking about.  

In Canada the internal cost, such as commissions, relating to the buying or selling shares within the fund, is included separately in the trading expense ratio (TER).  For passive ETFs these typically are zero (aka far less than 1 basis point). Here is an example: https://www.vanguard.ca/api/document/7418/CA

This is a non-issue.   

So, if we take Vanguard and VTI, the expense ratio is 0.03%.  The turnover rate is 8%, which is why the expense ratio is so low.  If the investor has an expensive brokerage and starts day-trading VTI, his personal costs will be high but that's nothing to do with the fund.  

The best thing is to cut the crap and look at performance of VTI vs the index its tracking.  Here is the record:

2021: -0.08%
2020: +0.06%
2019: -0.04%
2018: -0.07%
2017: -0.02%
2016: +0.06%

You get arithmetic mean of -0.015%.  That really tells us all we need to know about costs. Note that VTI's expense ratio has been decreasing over the considered period so the "actual" underperformance vs the expense ratio is even more impressive. I would expect VTI's costs, on average, to be less than the expense ratio as they have means of offsetting the costs but we are really getting into the weeds. Agree with Boston that we are arguing about fractions which are very close to zero.  The trick is to avoid anything that gets you to 0.5% or above - in terms of total costs on your portfolio. 

Your quote mentions taxation.  That's an interesting point.  If we take internal fund taxes relating to capital gains, US ETFs typically incur zero, at least I've never been charged that on US held funds.  They have a large chunk of their multibillion fund sitting in tax-sheltered accounts and all gains relating to their (small) turnover are allocated to such sheltered funds.  So those holding the fund in a non-registered account don't incur capital gains due to internal trading within the fund.  Very cool... Unfortunately Canadian ETFs can't do that. Probably does not work for actively trading products in the US either; turnover has to be relatively small. 

The other significant point that is often missed: funds holding foreign stocks  often incur withholding taxes. These can be higher than the expense ratio.