Investing the Vanguard way

Investing

Q: In a recent column about hiring a financial planner, you suggested Admiral shares of Vanguard’s Balanced Index Fund. We are now with Fidelity Investments. Does Fidelity have a fund comparable to Vanguard’s Balanced Index Fund?

A: Fidelity, like most mutual-fund companies, is mostly a managed-fund shop.

The firm believes in active management and has been a leader in the introduction of low-cost, no-commission, actively managed mutual funds.

So you won’t find a Fidelity index fund that duplicates Vanguard Balanced Index. You won’t find any Vanguard funds on Fidelity’s NTF (No Transaction Fee) list, either.

You can find Vanguard Balanced Index Investor shares on Fidelity’s list of funds you can buy with a transaction fee of $49.95 on purchase, but no fee on redemption. Also, you can’t buy the Admiral shares. The Investor shares have a minimum investment of $2,500 and an expense ratio of 0.25 percent.

Fidelity offers 70 iShares exchange-traded funds (ETFs) with no commission costs. You can build a virtual duplicate of Vanguard Balanced Index Fund by buying two ETFs:

• iShares Core S&P Total U.S. Stock Market (ticker: ITOT, expense ratio 0.07 percent); and

• iShares Core U.S. Aggregate Bond (ticker AGG, expense ratio 0.08 percent).

Note that the combined expense ratio will be slightly lower than the cost for Vanguard Balanced Index Admiral shares. If you want to avoid the extra work, you could also invest in Fidelity Puritan Fund. It’s a managed balanced fund with a splendid long-term track record and reasonable expenses.

Q: Is it true that the Reagan administration increased the Social Security taxes but never put the money into the Social Security Trust Fund?

A. No, it isn’t true. You can read a history of the fund and how its accounting has changed over the decades at this link: ssa.gov/history/BudgetTreatment.html.

Read it carefully — it isn’t long — and you’ll understand the basic accounting for the Social Security Trust Fund.

Until the 1983 reforms, employment-tax collections didn’t exceed benefit costs by much.

That changed after the reforms, which allowed the trust fund to build up to $2.7 trillion on the billions of dollars workers paid in excess of benefits paid out.

The excess was deposited to the Social Security Trust Fund as special Treasury securities.

But the actual cash went into the government’s general fund and was spent by presidents and Congresses of both parties.

Including the Social Security surplus in the “unified budget” allowed both parties to hide overspending.

Now the trust fund has a collection of IOUs that represent claims on the U.S. government. Those claims, in turn, can be met by new taxes citizens will be called upon to pay in the future.