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Best Brokerage for Mutual Funds

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Every year Money Magazine puts together its list of the seventy best mutual funds and then breaks them down into actively managed, index, ETFs and target retirement funds. I feel that by analyzing this list you can come away with some valuable information on which brokerage is right for you based on the performance of their funds.

Actively managed funds:

Of the seventy funds, forty-three reside in the actively managed category. Is this a vote for actively managed funds over index funds? Hardly, this is probably the case because actively managed funds are “sexier” and that there simply are more of them. The one thing to note is that there are a lot of funds from a lot of different places populating this list and it shows that competition in the actively managed fund category is (as it always has been) hot. Some notables I saw were that T. Rowe Price leads the pack with six with American Funds and Vanguard both holding four spots.
Winner: Unclear.

Index funds:

Fidelity and Vanguard own this list and they’ve owned it for a long time. Of the twelve funds listed, Vanguard runs nine and Fidelity runs the remaining three. The reason this is the case is because index funds require little management and thus will have rock bottom fees and I don’t think anyone can compete with the scale of operations of these two companies.
Winner: Vanguard by the numbers but Fidelity is just as good.

ETFs:

This list is less important because ETFs are traded like stocks and so having an account at the brokerage that runs them gives you no added advantage (it can be a disadvantage in the case of a brokerage like Vanguard – it costs significantly more to execute a stock trade there than elsewhere). That being said, Vanguard holds five of the thirteen spots, iShares (run by Barclay’s Global Investors) holds seven, and the last one is the iPath Dow Jones-AIG Commodity Index Total Return ETF. The morale of ETFs is that you should go to a cheaper brokerage to buy these ETFs.
Winner: None, it doesn’t really matter.

Target Retirement Funds:

Last but not least, Money gave a nod to both Vanguard Target Retirement funds and T. Rowe Price Retirement funds.
Winner: Tied, Vanguard and T. Rowe Price.

Anyone have any conclusions to make from the list?

For more information on how they came up with this list, read this article.

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8 Responses to “Best Brokerage for Mutual Funds”

  1. regarding your point on the ETFs, and how it’d be better to go with a cheaper brokerage — i used to give that recommendation to others but after thinking about it, i would say that advice doesn’t apply universally… if someone is a hands-off type of investor, and cares primarily about being with a top-notch brokerage, then going with places like vanguard and/or fidelity might be worth it… here’s the logic…

    let’s say a person trades 2-3x a year… going w/ fidelity or vanguard will cost them an extra ~$40 or so (assuming they’re buying to hold)… however, if you’re satisfied with fidelity/vanguard, and decide to put all or most of your investment dollars with them, then you get two benefits: 1) if you set up your main account with fidelity/vanguard, you’ll get the advantages of being an accountholder if/when you decide to invest in mutual funds through the same brokerage (b/c of fee waivers for accountholders); and 2) if you build up your overall amount of invested money to a certain level, you may qualify for lowered trade costs

    again, this is for people who care more about being with a top-quality and not-too-high-cost brokerage, and also doesn’t trade very often in the course of a year… =)

  2. I don’t like ETFs, primarily because if you’re going to use dollar cost averaging or invest X amount every month, you have to pay a fee for each investment. I like the idea of opening the mutual fund once, setting it and forgetting it. Vangaurd & T Rowe price have some really great targeted retirement date funds as well.

  3. mbhunter says:

    “Here are the funds that you should have bought last year, but didn’t.”

  4. Moneymonk says:

    I love Vanguard and T rowe Price, I have accounts for both.

    I also like Fidelity because of their 24 hour customer service.!

  5. Matthew says:

    I just got done flipping 300 pennies five times in a row. 6 of them landed heads up all five times. I conclude that these 6 pennies are the hot pennies for 2007. Next time I flip them, you should bet on all 6 of them coming up heads. It’s a sure thing.

  6. Tinyhands says:

    @Getting Green-
    However, there is the very real possibility of paying higher management fees (and/or early-liquidation premiums) in your “set it & forget it strategy.” Compounding is in effect here as well, but your mileage may vary, depending on the fund chosen, the amount periodically invested, and the number of purchases per year.

    This would be a very easy Excel spreadsheet (I love Excel) to set up for someone with the time to do it.

  7. Star Money Articles for the Week of Feb. 12

    Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: Consumerism Commentary gives five reasons people spend more money on the internet. AllFinancialMatters says that not all SP 500 index mutual funds are created e…

  8. Eric says:

    The Money Magazine article you referenced wasn’t necessarily ranking a broker in which to hold your mutual fund selections…it was just putting together a list of the best in it’s estimation.

    To reply to your Title: The Best Brokerage for Mutual Funds, the winner, hands down, as of 2/13.2007, has got to be Wells Fargo’s WellsTrade.

    Here’s how they work differently:

    Most brokerages have a selection of No-Transaction Fee funds. You may or may not find the funds you would like to invest in as part of this list. A larger group of funds are no-load TRANSACTION FEE funds. Fidelity charges a $75 commission to buy these funds!

    Wells Fargo has changed the game. You can use one of your 100 free trades per account/per year to buy those transaction-fee funds (in this case, vanguard, fidelity, dodge and cox, oakmark, you name it…) for…free.

    It also levels the playing field making choosing between an ETF and a mutual fund based soely on the underlying investment, not based on the commissions you would pay to buy and sell the ETF.

    Me thinks this is a whole nother post here…


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