Question Hello,
Thank you first of all for taking my question.
I have some money that I have set aside that I wanted to invest for the long term(10 yrs), in an us stock index fund. I am debating weather or not I should open an account with a no-load family such as Vanguard or simply buy such a no-load index fund through my bank, which I have all my accounts (checking, saving, credit card etc) with. The reason I have been considering buying mutual funds through my bank's brokerage is simply because I like to keep things simple and not have accounts scattered here and there.
However, I do not know the pros and cons of this and I'm not sure if I'd be better off investing directly through the mutual fund company. I would like your opinion on this.
Thank you,
atam
Answer Hello-
When indexing it's important to focus on costs...the funds, otherwise, by definition should be the same. So look closely at the actual costs you'll have with either option.
First of all there's the expense ratio of the fund itself. Vanguard's S&P 500 fund, for example, has an annual expense ratio of 0.18% (last I checked). That's very low, one of the best out there. Check to see what it is for the fund you're considering, and for the Vanguard fund you're considering.
But other things come into play...depending on how much you'll be investing, there might be an annual or quarterly fee just for maintaining an account. While these aren't so much of a concern if they're low, or at least low relative to the amount you have to invest, they might introduce an extra (say) 1% per year, or more, in investment costs. So based on the amount you're investing, look closely at the account-fee structure for Vanguard and for your bank. If you'll be nipped $50 per year for a $3000 investment, I think that's something to consider.
Next, I said that index funds are the same, but make sure the alternative fund does a good job of tracking the index - that's the point of course. Most do a good job of this but for some smaller ones, it's a genuine concern. If the fund has a "tracking error" that's significant, that's an incentive to put your money elsewhere. When you buy an index fund, you want to track the index as closely as possible.
Finally, you mention convenience - yes I think that does come into play. Maybe the bank option will cost you an extra $20 per year but that's worth it to you for the convenience of having everything in one place.
