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Advantage, Vanguard

To the Editor:
We are big fans of Vanguard Group (“Vanguard’s Bid to Stay on Top,” Cover Story, Dec. 27). The fee differential shown in Daren Fonda’s article only scratches the surface of the more deeply embedded costs, which makes Vanguard shine ever more brightly. The 0.58% industry average seems to overlook the preponderance of 12b-1 expenses and others that are absent in every Vanguard fund and present in most of the others. That’s another 0.25% or more. Vanguard also doesn’t pay for shelf space at brokerages, which others do and trade higher commissions and soft dollars in the process. This can hide expenses outside of the “management fee.” The article also makes no mention of tax drag from active strategies. The passive nature of most Vanguard funds drives down two other unmentioned costs: trading friction and tax drag. Trading friction is virtually zero in an index fund and can reach over 1% or more in actively traded funds. That’s before you consider the more important issue of taxes. Compare two identical funds with an 8% 30-year return. One distributes gains through fund trading annually, and the other defers taxes through internal stasis. One investor in each fund both liquidate their holdings and pay all taxes at the end of three decades. The two pots had identical performance but tax drag on the first amounts to 1.89% in lost compounding. That’s another $1 million on a million starting value. Then there’s this: all of that trading inside the active fund mitigates the biggest advantage of deferral: the step up in basis offering expungement of tax liability on untaxed gain as grandpa now ages. The pay-as-you-go method, when all is considered, might cut possible returns in half over a lifetime.

Gil Baumgarten
President, Segment Wealth Management

The Coming Decade

To the Editor:
Interesting points (“The 2020s Will Bring Massive Change. Why Society Might Not Be Ready,”777彩票地址 Dec. 27, 2019). However, Haim Israel believes that current governments will remain a constant in the extended future. I would wager that not only will governments fall/fail but that the same boundaries they represent will become irrelevant--very likely replaced by new boundaries dictated by either religion or natural resources. The ramifications of all of the various forces he highlighted will be far more dramatic than he predicted.

Tom Kadala,
Manchester-by-the-Sea, Mass.

Send letters to: mail@barrons.com777彩票地址. To be considered for publication, correspondence must bear the writer’s name, address, and phone number. Letters are subject to editing.

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