or TIAA-CREF? Page
- With funds that are
tax-sheltered, use TIAA-CREF until amount gets above $10,000 (listed
in Figure 1),
then roll over to Vanguard's equivalent fund.
- With funds in one's
taxable accounts, use TIAA-CREF if your time horizon is in the
range shown in Figure 2 (although the TIAA-CREF advantage decreases
as fund assets get beyond $10,000, and if you plan to regularly
add to the accounts, the time horizon will shrink to the time
your account reaches $10,000).
- Do not slice and
dice beyond broad asset categories until your accounts get reasonably
- If you have other
reasons for preferring one company over another, don't sweat it,
since the savings are relatively modest and both companies are
respected, no-nonsense, customer-friendly businesses with fierce
loyalty from their investors.
Vanguard does of course offer its collection of Life Strategy funds,
offering fixed mixtures of funds, with low fees. However, this article
is aimed at the investor who likes to create their own multi-fund
0.06/100 > [($10 if less than $5000 + $10 if less than 10,000)
/ x] when
x = $10,000.
0.10/100 > [($10 if less than $5000 + $10 if less than 10,000)/x]
Some of TIAA-CREF's funds are not considered in this analysis because
of questions of asset comparability. The TIAA-CREF Inflation Protected
Securities fund, for instance, is available only to certain investors.
The TIAA-CREF REIT fund is also not comparable, since it owns direct
real estate rather than being an index of REIT stocks. Both of these
TIAA-CREF funds are also annuities and do not function like a traditional
mutual fund. Other funds, like the growth and income and managed
allocation, cannot necessarily be compared because of differences
in allocation strategy between the two companies, and the fact that
Vanguard only charges some fees on it's index funds and not its
actively managed funds. The break-even point is relatively low on
these two funds anyway, so one is probably wiser to use Vanguard.
The above analysis makes the following assumptions: (1) The returns
of the Russell 3000 is equivalent to the Wilshire 5000, (2) both
companies add equal value through their trading strategies, (3)
TIAA-CREF's ERs won't go up, (4) TIAA-CREF's "dual investment
strategy" doesn't hurt or help returns above what's reflected
in the ERs, (5) the fees you save come out of your investment budget,
i.e. is invested and not used for a sandwich.
Given there is no custodial fee at Vanguard on taxable accounts,
it is somewhat surprising that Figure 1 applies identically as it
did with IRAs. It turns out that because all the break-even points
are above the point where Vanguard charges its custodial fee, the
break-even points for taxable investments are identical to the tax-preferenced,
despite the different fee structure.
These tables were constructed from an Excel spreadsheet which assumed
the W5000/R3000 had returns listed. The Vanguard totals were calculated
by taking the ER off the top and then subtracting pertinent fees
and reinvesting remaining returns. The TIAA-CREF totals were calculated
by taking the ER off the top and reinvesting returns. For each year,
total assets were compared between the two funds. "Peak difference"
represents the number of years at which the difference was at its
maximum (when funds reached $10,000). The "break-even"
point, the point representing the time-horizon one should use in
calculating, represents the number of years where Vanguard's ER
advantage finally eats up the savings in fees.