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Price War in Index Funds?

Contributed by mm | September 20, 2004 9:01 AM PST

Two weeks ago I was reading USAToday in the company cafeteria, and there was a full-page advertisement from Fidelity about expense reduction in five index funds. To be exact, Fidelity cut the expense ratio on five index funds to 0.10% and declared a price war against Vanguard.

Then, the next day, E*Trade became the uninvited intruder into this war by announcing a cut of expense ratio of two index funds down to 0.09%.

So, if your portfolio includes an index fund portion, should you switch flight now? Dustin Woodard from About Mutual Funds has some insights:

First, this is not the first time Fidelity brought up a price war in index funds: Fidelity did the same in 1990, only to raise it back in the next four years.

Second, it might not be meaningful for one to change funds unless there is no tax consequences and no trading fees.

I will add a third reason: you can say index funds are the same, but they are not. As I mentioned back in March, Vanguard is ahead of index-tracking ETFs in all seven comparisons in a research -- hiring an experienced team can still pay off in principal growth.

This Post Has Received 1 Comment. Share Your Opinions Too.


Todd Commented on September 24, 2004

What's the minimum initial investment for these mutual funds? They are all Spartan funds.


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