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I am hardly an expert, and I personally go miles out of my way to avoid wash sales in my own account. Never had 'em, never will. But I think the argument is that even though two funds might track the same index (S&P 500, Russell 2000, whatever) their tracking procedures are different, they impose different fees, they keep different cash reserves, etc. So if you invest identical amounts in two such funds, a year from now you won't have identical results. And until the IRS is a bit more precise about what the phrase "substantially identical" means, you're ok. As I said, I think that's the idea. Sounds good to me.

Just for fun, I just looked at the two funds you mentioned - Vanguard and Fidelity S&P 500 index funds. As of 12/31/2002, their 1 and 3 year returns are -22.15% and -14.60% (Vanguard) and -22.17% and -14.64% (Fidelity). Expense rations are 0.18 vs 0.19. So - pretty damn close, as you'd expect - but not identical. (Substantially identical? I'd be inclined to say so, but I'm not making the call. The experts say no.)

And how about those returns? Yowza!

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