iShares Core Allocation ETFs - Fee Reduction

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BackToSchoolDad
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iShares Core Allocation ETFs - Fee Reduction

Post by BackToSchoolDad »

I've long been intrigued by asset allocation ETFs and have a token amount in the iShares AOR.

I was checking out the iShares page for them this morning and noticed the ER had been reduced to 21 basis points and 15 after the fee waivers.

Haven't seen any discussion of that here, so I thought I would see what everyone else thinks? This gets them closer to the VG Lifestrategy funds with the built in benefits of ETFs.

Seems like there's no reason these fees can't reduce further. Will more people invest in these as the fees become more competitive?
Last edited by BackToSchoolDad on Sat Oct 23, 2021 10:22 am, edited 1 time in total.
pizzy
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by pizzy »

BackToSchoolDad wrote: Sat Oct 23, 2021 9:53 am I've long been intrigued by asset allocation ETFs and have a token amount in the iShares AOR.

I was checking out the iShares page for them this morning and noticed the ER had been reduced to 20 basis points and 15 after the fee waivers.

Haven't seen any discussion of that here, so I thought I would see what everyone else thinks? This gets them closer to the VG Lifestrategy funds with the built in benefits of ETFs.

Seems like there's no reason these fees can't reduce further. Will more people invest in these as the fees become more competitive?
What is the benefit of these over the VG Life Strategy?
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BackToSchoolDad
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by BackToSchoolDad »

pizzy wrote: Sat Oct 23, 2021 9:57 am What is the benefit of these over the VG Life Strategy?
Ability to hold at any brokerage mainly. There's also some slight tax benefits to the ETF structure, but it's not a huge advantage.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by whodidntante »

But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy? :twisted:
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by jeffyscott »

pizzy wrote: Sat Oct 23, 2021 9:57 am What is the benefit of these over the VG Life Strategy?
30/70 available in a single, AOK, fund :wink:

I think it's that there would be no transaction fee or commission for those who have accounts where they would have to pay a fee to buy lifestrategy funds. There's no reason for me to use them, but it's good that they decided to make the fees competitive for those who do.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by sycamore »

jeffyscott wrote: Sat Oct 23, 2021 10:23 am
pizzy wrote: Sat Oct 23, 2021 9:57 am What is the benefit of these over the VG Life Strategy?
30/70 available in a single, AOK, fund :wink:

I think it's that there would be no transaction fee or commission for those who have accounts where they would have to pay a fee to buy lifestrategy funds. There's no reason for me to use them, but it's good that they decided to make the fees competitive for those who do.
+1, also glad to see the fee reduction in general.

Note: Vanguard offers a fixed 30/70 allocation not in a Life Strategy fund but with their Vanguard Target Retirement Income Fund VTINX.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by absolute zero »

This is great news. I have always found these funds intriguing but have been mildly turned off by the slightly high expense ratios. I think not too long ago they had ER’s of +/- 25 bps. A reduction to 15 bps makes them much more reasonably priced. And as far as I know, these are currently the only asset allocation ETF’s on the market.

I currently don’t have any reason to hold these funds, but I could see myself using them at some point in the future.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by 6NDone »

whodidntante wrote: Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy? :twisted:

The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
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BackToSchoolDad
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by BackToSchoolDad »

6NDone wrote: Sat Oct 23, 2021 11:25 am The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
Even without the waiver, they've already lowered the fee, but I'm more concerned about them changing the underlying holdings long term than I am about the fees going up.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by jeffyscott »

BackToSchoolDad wrote: Sat Oct 23, 2021 11:36 am
6NDone wrote: Sat Oct 23, 2021 11:25 am The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
Even without the waiver, they've already lowered the fee, but I'm more concerned about them changing the underlying holdings long term than I am about the fees going up.
Having a contractual waiver for 5 years is pretty good, actually. Though not sure what it means when it can be terminated at any time that Shares Trust and BlackRock Fund Advisors agree to do so?

From the prospectus:
BFA, the investment adviser to the Fund, has contractually agreed to waive a portion of its management fees in an amount equal to the Acquired Fund Fees and Expenses, if any, attributable to investments by the Fund in other series of the Trust and iShares, Inc. through November 30, 2026. The contractual waiver may be terminated prior to November 30, 2026 only upon written agreement of the Trust and BFA.

Even at 0.2%, it might be better than paying transaction fees to buy life strategy funds, if that is the alternative.

Another option, though not for taxable, would be to do something like buy whatever NTF target date fund is closest to the desired allocation and then trade back to that allocation every 5 years.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by UpperNwGuy »

BackToSchoolDad wrote: Sat Oct 23, 2021 11:36 am
6NDone wrote: Sat Oct 23, 2021 11:25 am The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
Even without the waiver, they've already lowered the fee, but I'm more concerned about them changing the underlying holdings long term than I am about the fees going up.
I know Vanguard has changed the underlying holdings of their allocation funds. Has BlackRock done the same?
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by BackToSchoolDad »

UpperNwGuy wrote: Sat Oct 23, 2021 1:55 pm I know Vanguard has changed the underlying holdings of their allocation funds. Has BlackRock done the same?
They did once to simplify the holdings, which created some capital gains distributions, the only time the funds have distributed gains I believe.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by UpperNwGuy »

BackToSchoolDad wrote: Sat Oct 23, 2021 2:02 pm
UpperNwGuy wrote: Sat Oct 23, 2021 1:55 pm I know Vanguard has changed the underlying holdings of their allocation funds. Has BlackRock done the same?
They did once to simplify the holdings, which created some capital gains distributions, the only time the funds have distributed gains I believe.
Vanguard changed the ratio of US to international stocks. Still later they added international bonds.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by BackToSchoolDad »

UpperNwGuy wrote: Sat Oct 23, 2021 2:59 pm Vanguard changed the ratio of US to international stocks. Still later they added international bonds.
That's true, I was referring to the iShares ETFs. I believe they've maintained the same international equity and bond weighting since the fund's inception.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by anon_investor »

sycamore wrote: Sat Oct 23, 2021 11:13 am
jeffyscott wrote: Sat Oct 23, 2021 10:23 am
pizzy wrote: Sat Oct 23, 2021 9:57 am What is the benefit of these over the VG Life Strategy?
30/70 available in a single, AOK, fund :wink:

I think it's that there would be no transaction fee or commission for those who have accounts where they would have to pay a fee to buy lifestrategy funds. There's no reason for me to use them, but it's good that they decided to make the fees competitive for those who do.
+1, also glad to see the fee reduction in general.

Note: Vanguard offers a fixed 30/70 allocation not in a Life Strategy fund but with their Vanguard Target Retirement Income Fund VTINX.
Vanguard supposedly is lowering the ER for their target date funds to 0.08% sometime in 2022.
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iShares balanced funds got cheaper!

Post by Blue456 »

[Merged into existing discussion -- moderator oldcomputerguy]

I was always huge fun of balanced funds, especially ETF balanced funds such as AOK, AOM, AOR and AOA. These are roughly 20/80, 40/60, 60/40 and 80/20 balanced funds. Their expense ratio was always a turn off but to my surprise they have become much more competitive. They are now 15bp down from 25bp. I love it! Even better this represents trend of iShares consistently dropping their ER, which makes them much more trustworthy in the long term for those who want to use these in taxable account.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by BF3000 »

Is there something specific about the ETF wrapper that makes these blackrock allocation funds more tax efficient than vanguard life strategy mutual funds when rebalancing asset classes? I get the taxable account advantage of ETF in-kind redemptions when comparing, say, a momentum ETF to a mutual fund with the same strategy. But I don’t understand the advantage when rebalancing; winning stock positions would have to be sold to buy more bonds, for example. Please enlighten me as it seems using an ETF structure could be a big advantage.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by Northern Flicker »

6NDone wrote: Sat Oct 23, 2021 11:25 am
whodidntante wrote: Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy? :twisted:

The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
Fee waivers are just what they are committing to legally. It does not mean that fees will go up in 2026. They likely will be as low or lower then.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by Uncle Morris »

I used to hold AOA (80/20), and have given thought to returning to it for simplicity and automatic rebalancing.

But I don't get why it (and AOR=60/40) both underperform a 70/30 mix of ITOT and IUSB, and the Vanguard Balanced Index.

https://www.portfoliovisualizer.com/bac ... tion4_3=30

Is this underperformance the price for simplicity? I switched from AOA because of the expense ratio at the time (I think it was 35 bp), and that would have some effect, but I think there must be more going on as well. What am I missing?
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by isira »

Uncle Morris wrote: Sat Nov 27, 2021 9:13 pm I used to hold AOA (80/20), and have given thought to returning to it for simplicity and automatic rebalancing.

But I don't get why it (and AOR=60/40) both underperform a 70/30 mix of ITOT and IUSB, and the Vanguard Balanced Index.

Is this underperformance the price for simplicity? I switched from AOA because of the expense ratio at the time (I think it was 35 bp), and that would have some effect, but I think there must be more going on as well. What am I missing?
Well for one, AOA/AOR is market weighted US/International and ITOT/IUSB and VBINX is 100% US portfolio. Take a look at the holdings of AOR. https://www.ishares.com/us/products/239 ... f#holdings

AOA/AOR/AOM/AOK are closer to Vanguard LifeStrategy funds which have a mix of US and International.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by Uncle Morris »

isira wrote: Sat Nov 27, 2021 11:06 pm
Well for one, AOA/AOR is market weighted US/International and ITOT/IUSB and VBINX is 100% US portfolio. Take a look at the holdings of AOR. https://www.ishares.com/us/products/239 ... f#holdings

AOA/AOR/AOM/AOK are closer to Vanguard LifeStrategy funds which have a mix of US and International.
Ah, that could explain it. Would that cover most or all of the gap?
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by 000 »

Uncle Morris wrote: Sat Nov 27, 2021 11:12 pm
isira wrote: Sat Nov 27, 2021 11:06 pm
Well for one, AOA/AOR is market weighted US/International and ITOT/IUSB and VBINX is 100% US portfolio. Take a look at the holdings of AOR. https://www.ishares.com/us/products/239 ... f#holdings

AOA/AOR/AOM/AOK are closer to Vanguard LifeStrategy funds which have a mix of US and International.
Ah, that could explain it. Would that cover most or all of the gap?
Yes. International stocks have significantly underperformed US stocks for a decade.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by 6NDone »

Northern Flicker wrote: Sat Nov 27, 2021 5:22 pm
6NDone wrote: Sat Oct 23, 2021 11:25 am
whodidntante wrote: Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy? :twisted:

The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
Fee waivers are just what they are committing to legally. It does not mean that fees will go up in 2026. They likely will be as low or lower then.
Maybe. Or it does indeed go up in 2026. Nobody knows until 2026. As it is written today, you have no reasonable expectation of the fee remaining fixed beyond 2026.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by BackToSchoolDad »

BF3000 wrote: Sat Nov 27, 2021 5:18 pm Is there something specific about the ETF wrapper that makes these blackrock allocation funds more tax efficient than vanguard life strategy mutual funds when rebalancing asset classes? I get the taxable account advantage of ETF in-kind redemptions when comparing, say, a momentum ETF to a mutual fund with the same strategy. But I don’t understand the advantage when rebalancing; winning stock positions would have to be sold to buy more bonds, for example. Please enlighten me as it seems using an ETF structure could be a big advantage.
I think the ETF wrapper allows them to avoid any capital gains distributions. The VG Lifestrategy funds regularly distribute gains, whereas the iShares ETFs only did once when they simplified the international holdings.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by Northern Flicker »

6NDone wrote: Sun Nov 28, 2021 7:24 am
Northern Flicker wrote: Sat Nov 27, 2021 5:22 pm
6NDone wrote: Sat Oct 23, 2021 11:25 am
whodidntante wrote: Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy? :twisted:

The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
Fee waivers are just what they are committing to legally. It does not mean that fees will go up in 2026. They likely will be as low or lower then.
Maybe. Or it does indeed go up in 2026. Nobody knows until 2026. As it is written today, you have no reasonable expectation of the fee remaining fixed beyond 2026.
I have a reasonable expectation that it won't go up or go up by much based on the track record of fee waiver usage. iShares is projecting that the fee waiver will attract enough assets for the low fee to be self-sustaining.

Fund ERs are projections of costs, not legally binding without a contractual fee waiver. What reasonable expectation is there that your favorite total market index fund will have fees in line with projected ER?
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by Uncle Morris »

Thank you, isira and 000 for reminding me about the international component in these funds.

Now a question about the fees themselves.

Imagine AOA (at 15 bps) vs a three-fund portfolio of 50% ITOT (3 bps), 25% IXUS (9 bps) and 25% IUSB (6bps).

Yes, I know AOA has other small components, like ex-US bonds, but these are the main ingredients. Am I right in calculating the weighted average of the expenses for this three-fund portfolio at 7 bps? (Really, not a math major!) And if so, is AOA worth it at 15 bps with automatic rebalancing, elimination of behavioral errors, etc.?
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by 000 »

Uncle Morris wrote: Thu Dec 02, 2021 7:46 pm Thank you, isira and 000 for reminding me about the international component in these funds.

Now a question about the fees themselves.

Imagine AOA (at 15 bps) vs a three-fund portfolio of 50% ITOT (3 bps), 25% IXUS (9 bps) and 25% IUSB (6bps).

Yes, I know AOA has other small components, like ex-US bonds, but these are the main ingredients. Am I right in calculating the weighted average of the expenses for this three-fund portfolio at 7 bps? (Really, not a math major!)
I got 5.25bp == 0.50 * 3 + 0.25 * 9 + 0.25 * 6
And if so, is AOA worth it at 15 bps with automatic rebalancing, elimination of behavioral errors, etc.?
Probably, assuming a non taxable (IRA, etc) account. Historically there hasn't been much rebalancing bonus but it would be present in a sideways market. Potential behavioral errors are probably the bigger reason to hold the fund. Many investors (including me) struggle to stare at the losers in their holdings. This together with other performance chasers cheering their holdings leads to temptation to performance chase, which actually can work well for a while as long as momentum holds up, but eventually is a losing strategy.

I wouldn't hold any balanced fund in taxable but it's actually possible if they do it right that a balanced ETF of ETFs could be very tax efficient and provide tax efficient rebalancing versus separate holdings but I'm not sure if that is the case for this fund.

Another thing I noticed while researching these iShares allocation ETFs is they seem to be underweight mid and small caps versus the US total market.

And of course like most balanced funds there are only nominal bonds no TIPS.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by invest2bfree »

000 wrote: Thu Dec 02, 2021 8:11 pm

I wouldn't hold any balanced fund in taxable but it's actually possible if they do it right that a balanced ETF of ETFs could be very tax efficient and provide tax efficient rebalancing versus separate holdings but I'm not sure if that is the case for this fund.


AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.

VSMGX has one distribution every year.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by prioritarian »

invest2bfree wrote: Fri Dec 03, 2021 11:41 am
000 wrote: Thu Dec 02, 2021 8:11 pm

I wouldn't hold any balanced fund in taxable but it's actually possible if they do it right that a balanced ETF of ETFs could be very tax efficient and provide tax efficient rebalancing versus separate holdings but I'm not sure if that is the case for this fund.


AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.

VSMGX has one distribution every year.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by withrye »

invest2bfree wrote: Fri Dec 03, 2021 11:41 am AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.

VSMGX has one distribution every year.
It looks like you hold AOR and might know the answer to this question. Does the following accurately represent the annual cost of AOR in a taxable account?

It looks like it has around a 2% dividend yield. Of this, around 50% is qualified and taxed as long term capital gains, and the other 50% is taxed as ordinary income (federal and state for both).

So for someone in the 24% federal and 5% state ordinary and 15%/5% LTCG brackets, they'd accrue (1% x 0.29) = 0.29% in income tax costs and (1% x 0.2) = 0.2% LTCG costs for a total of 0.49% annual tax drag.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by invest2bfree »

withrye wrote: Fri Dec 03, 2021 11:59 am
invest2bfree wrote: Fri Dec 03, 2021 11:41 am AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.

VSMGX has one distribution every year.
It looks like you hold AOR and might know the answer to this question. Does the following accurately represent the annual cost of AOR in a taxable account?

It looks like it has around a 2% dividend yield. Of this, around 50% is qualified and taxed as long term capital gains, and the other 50% is taxed as ordinary income (federal and state for both).

So for someone in the 24% federal and 5% state ordinary and 15%/5% LTCG brackets, they'd accrue (1% x 0.29) = 0.29% in income tax costs and (1% x 0.2) = 0.2% LTCG costs for a total of 0.49% annual tax drag.
How is this different than VT\BND 60\40

I save the rebalancing portion for that extra fee, I get stress free rebalancing.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by withrye »

invest2bfree wrote: Fri Dec 03, 2021 2:57 pm
withrye wrote: Fri Dec 03, 2021 11:59 am
invest2bfree wrote: Fri Dec 03, 2021 11:41 am AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.

VSMGX has one distribution every year.
It looks like you hold AOR and might know the answer to this question. Does the following accurately represent the annual cost of AOR in a taxable account?

It looks like it has around a 2% dividend yield. Of this, around 50% is qualified and taxed as long term capital gains, and the other 50% is taxed as ordinary income (federal and state for both).

So for someone in the 24% federal and 5% state ordinary and 15%/5% LTCG brackets, they'd accrue (1% x 0.29) = 0.29% in income tax costs and (1% x 0.2) = 0.2% LTCG costs for a total of 0.49% annual tax drag.
How is this different than VT\BND 60\40

I save the rebalancing portion for that extra fee, I get stress free rebalancing.
I haven't looked at the numbers for an 60/40 VT/BNDW portfolio. I agree that getting rebalancing and behavioral protection from a single fund is ideal.

I wasn't criticizing the 0.49% tax drag, I was asking the literal question of whether I had logic/math correct on the calculation method.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by BogleBuddy12 »

invest2bfree wrote: Fri Dec 03, 2021 11:41 am
000 wrote: Thu Dec 02, 2021 8:11 pm

I wouldn't hold any balanced fund in taxable but it's actually possible if they do it right that a balanced ETF of ETFs could be very tax efficient and provide tax efficient rebalancing versus separate holdings but I'm not sure if that is the case for this fund.


AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.

VSMGX has one distribution every year.
Would this be a good reason to choose AOR over VSMGX in taxable?
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by vineviz »

6NDone wrote: Sat Oct 23, 2021 11:25 am
whodidntante wrote: Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy? :twisted:

The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
It’s basically unheard of for a major ETF provider to allow the waiver to expire without permanently reducing the fee to match.
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Re: iShares Core Allocation ETFs - Fee Reduction

Post by 000 »

BogleBuddy12 wrote: Mon Apr 18, 2022 10:01 am Would this be a good reason to choose AOR over VSMGX in taxable?
Yes.
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