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All Your Money At One Fund Company? You May Be Selling Yourself Short


Investors like to stick with what they know and that is often demonstrated in the use of a single fund company for all their wealth.  I see it quite frequently when I review portfolios for prospective clients.  “I’m a Vanguard guy.”  “I love Fidelity funds.”  “All my money is at American Funds or PIMCO or T. Rowe Price.”

There are certainly a solid menu of ETFs and mutual funds to be purchased at all those companies.  However, they don’t necessarily offer the best of breed for every single asset class or solution.  Many of them are known for being specialists in a specific category – i.e. Vanguard for indexing, PIMCO for bonds, Fidelity for active management, etc.

It’s tough to dispute the attractiveness of an index powerhouse like Vanguard, but even they can’t lay claim to the lowest cost ETFs anymore.  Blackrock and Charles Schwab both have several comparable total market funds that beat Vanguard on annual expenses.

Vanguard Total Stock Market ETF (VTI) – 0.05% expense ratio

iShares Core S&P Total U.S. Stock Market ETF (ITOT) – 0.03% expense ratio

Schwab US Broad Market ETF (SCHB) – 0.03% expense ratio

Similar fee wars have played out in other asset classes as well. There are often much greater opportunities to be had by spreading your wealth among various fund providers to seek out top-performing managers, lower expenses, or simply diversify your holdings to seek out better returns.

Furthermore, the brokerage capabilities of today’s investment accounts provide the flexibility to purchase virtually any fund you want regardless of where your money is located.  The exceptions are insurance products and 401(k) or 403(b) accounts, where you are limited in the scope of your options.

Let me give you a real-world example.  For my income-focused clients, I own 10 different funds (not including cash).  The fund companies range the gamut from Vanguard, Blackrock, Doubleline, State Street, and even First Trust.  The reality is that I could probably find a suitable replacement for all 10 holdings at any one of those firms.  However, I would feel remiss in settling for an “ok” option when I know there is a better one to be had elsewhere.

The bottom line is that there is a definitive reason I chose these funds outside of the actual investment company.  Some are the best of breed in their fields.  Others target a specific asset class or niche that is unique.  While still others are there for simple index exposure at a very minimal cost.

Whatever your investment strategy may be, don’t get sucked into a state of tunnel vision for just one company.  You probably don’t even have to move your account to be able to buy a mutual fund or ETF from a different firm.  And honestly, if you can’t, then you are on the wrong platform to begin with.   Just because {insert firm name} had the best funds 20 years ago, doesn’t mean they still do today.

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Comment   |  3 months, 1 week ago from Irvine, CA