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All in expense ratio
Old 02-25-2018, 08:44 PM   #1
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All in expense ratio

Iíve been running searches for threads discussing Ďrealisticí expense ratios. I didnít find a lot but that could easily be user error. I also tried to figure out how to make a poll but that didnít work out either.

I know Firecalc has a default setting of .18 for expense ratio. I have seen comments where people referenced meeting or even going below that. Iím at .28 and with a couple of changes maintain my roughly 60/40 AA and get it down to .19.

Trouble with that is, based on published returns for the specific funds involved, last years performance would have been .5% lower. I recognize that past performance is no guarantee for the future but not sure what else to use.

Running my situation through various scenarios with expense ratio as the only variable in Firecalc each .1% seems to have a 1-1.5% variance in survivability. In my case, not a make it or break it factor. I think Iíve reached the point of diminishing returns for the amount of brain cells and time Iíve used up thinking about this.

So, my question for the community is, what is a Ďreasonableí expense ratio? For anyone that uses outside help, exclude that fee. For people that roll their own portfolio with no fund managers, count your trading fees as the expense ratio.

Thanks in advance.
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Old 02-25-2018, 10:26 PM   #2
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My weighted average is 0.02%. But that is because I include in my weighted average a negative expense ratio on my cash, because it's earning 1.45%. That may not be a fair way to look at it.

My money is all in VTSAX and VBTLX, which I are 4 and 5 basis points, respectively. I don't trade in general, but when I do, it's free, so I have zero trading fees. I use no outside investment help other than the free consultation at Vanguard.
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Old 02-26-2018, 05:27 AM   #3
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So, my question for the community is, what is a ‘reasonable’ expense ratio? For anyone that uses outside help, exclude that fee. For people that roll their own portfolio with no fund managers, count your trading fees as the expense ratio.

Thanks in advance.
Ours is .17, and as a boglehead, I consider that on the high side. One of the reasons it's at that level is my 401K plan; sometimes you just don't have cheap options available.

After I quit my job (I'm a part timer right now), and roll that 401K over to Vanguard or Fidelity, I should be able to get the ratio under .10, which is where I think it should be.

PS - don't look at one year's returns when determining if a high expense ratio is "worth it". Especially a year like last year.
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Old 02-26-2018, 05:41 AM   #4
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Our cost is at 0.07% but I think anything below 0.25% is good.
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Old 02-26-2018, 06:47 AM   #5
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My weighted average is 0.02%. But that is because I include in my weighted average a negative expense ratio on my cash, because it's earning 1.45%. That may not be a fair way to look at it. ....
That is definitely NOT the way to look at it. For my online cash I would use 0.00% ER, though in reality it is an unknown amount embedded in the 1.45%.

Same with my 3% PenFed CDs... ER is 0.00% but is an unknown embedded in the 3%.
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Old 02-26-2018, 07:29 AM   #6
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Unless there are mitigating factors (such as 401k funds that you can't choose which don't have low ERs), I'd say having an overall ER at or above 0.1% would be excessive and unnecessary.
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Old 02-26-2018, 07:32 AM   #7
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...I think anything below 0.25% is good.
+1

Of course lower is always better, provided you are invested the way you want to be.
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Old 02-26-2018, 07:57 AM   #8
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I would venture to guess that FIREcalc used 0.18% as the default may be because that was the ER of the Vanguard 500 Index Fund (Investor Shares) back in the day, and it was considered quite good at the time. As others mentioned, you can do much better these days.
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Old 02-26-2018, 08:16 AM   #9
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Originally Posted by SecondCor521 View Post
My weighted average is 0.02%. But that is because I include in my weighted average a negative expense ratio on my cash, because it's earning 1.45%. That may not be a fair way to look at it.
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That is definitely NOT the way to look at it. For my online cash I would use 0.00% ER, though in reality it is an unknown amount embedded in the 1.45%.
Negative expense ratio is an interesting way to look at it. I looked up the overnight rate at https://www.treasurydirect.gov/GA-FI...htRateDate.htm and it is 1.37% today, so arguably you are at a -0.08% on your cash.

But that is only if your cash is truly in overnight funds (a bank savings or checking account). For example, Vanguard Money Market Prime shows an ER of 0.16% with a current yield of 1.50% and an average maturity of 47 days.
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Old 02-26-2018, 08:44 AM   #10
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Our weighted average ER is 0.12%. About half the portfolio is VTI and AGG at 0.04% and 0.05% respectively. Another 30% is right around 0.12%, like VNQ (REIT) and several international ETFs. What drives it up are HYG (0.49%) and an old legacy ETF in the taxable account with huge embedded CGs, and an ER of 0.38%. I include our small rental property and cash at 0%. If I exclude those, the weighted average is 0.13%.

I trade maybe 4 or 5 times per year and much of that is free (iShares ETFs at Fidelity). Vanguard ETFs cost $4.95 to trade at Fidelity, which is completely inconsequential in the ER calculation. No advisor or any other fees.
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Old 02-26-2018, 08:57 AM   #11
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60/40, .07% all up.

Mostly Vanguard and my 401k at Fidelity.
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Old 02-26-2018, 09:17 AM   #12
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According to my Vanguard Portfolio Watch view I'm at .08 overall. I have one actively managed fund in a taxable account which I've had for decades and I don't want to sell it and incur capital gains just to move the money to an index fund. Otherwise it would probably be a bit lower.

The international index funds all seem to be north of .10, but since most of us only hold a minority share of those, it should be easy enough to keep the overall ratio below .10 if you're a true indexer.

Vanguard does not include any cash holdings in their calculations.
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Old 02-26-2018, 10:18 AM   #13
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So, my question for the community is, what is a Ďreasonableí expense ratio?
Hard to say if there is an answer to that. "Reasonable" would depend on how you see it. For example, someone with an FA charging 1.5% of AUM might think that's very reasonable because the FA produces a great total return. Others might think that's not reasonable at all.

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I think anything below 0.25% is good.
I would agree with that. Personally, my overall is 0.08% and I'm very happy with that. A couple of years ago it was well over half a percent and I've been whittling it down steadily.
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Old 02-26-2018, 10:40 AM   #14
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Our cost is at 0.07% but I think anything below 0.25% is good.
Agree. I wouldnít sweat it if ER is under 0.25%
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Old 02-26-2018, 11:54 AM   #15
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Negative expense ratio is an interesting way to look at it. I looked up the overnight rate at https://www.treasurydirect.gov/GA-FI...htRateDate.htm and it is 1.37% today, so arguably you are at a -0.08% on your cash.

But that is only if your cash is truly in overnight funds (a bank savings or checking account). For example, Vanguard Money Market Prime shows an ER of 0.16% with a current yield of 1.50% and an average maturity of 47 days.
Most of my cash is in a plain vanilla Alliant Credit Union savings account. Last I checked it was paying 1.45%; they've been bumping the rate up a little bit recently like everywhere else. It's not the best, but I don't have that much and it's not worth the hassle for me to move.

@pb4uski, you're right, I was double counting the 1.45% - first, as a negative expense ratio in my weighting, and second, as the return on my cash when I ran simulations. I removed the negative expense ratio weighting part, so now my portfolio ER is 0.05%.

(Since I am at a 2.9% gross withdrawal rate and probably about a 1.5% net withdrawal rate, I'm not going to go back to work just yet to cover those additional 3 basis points.)
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Old 02-26-2018, 10:23 PM   #16
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Agree. I wouldn’t sweat it if ER is under 0.25%
Maybe not worth sweating, but I see VTI is 0.04% and BND is 0.05%. So say 0.045% for a 50-50 AA.

The difference between 0.25% and 0.045% on a $1M portfolio is $2,050 each year. Considering how easy it is to choose the low ER funds, it's an easy $2,050 per year. I think most of us routinely put in a lot more effort than that to save far less. And this savings keeps repeating itself, and grows as your portfolio grows.

Unless you have taxable gains to worry about, it seems like a no-sweat action.

Hmm, I hold some BRK in my taxable account, to limit divs for ROTH conversions. I guess it doesn't have an "ER" as such?

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Old 02-27-2018, 12:17 AM   #17
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Y'all make me look.

Currently, only 12% of my stash is in MF, and the rest is self-managed in individual stocks. If I take the transaction costs reported by Quicken, and divide that into the self-managed portion, I get 0.07%.

That's pretty low for being an active investor. I pay $3 per option trade. The stock trades are free, unless they are by option assignment then it's $7.

PS. I also have quite a bit of ETF in that self-managed portion. They of course have expenses compared to individual stocks, so my total ER is definitely higher than that 0.07%.
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Old 02-27-2018, 06:06 AM   #18
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I'm at 0.17 now. Why isn't it lower?

- Most of my funds run from 0.05 to 0.14%
- But I have about 10% of my portfolio in FLPSX (e/r at 0.68) in a taxable account. Sold it all a couple of years ago in my rollover IRA, but I don't want to incur a capital gain hit in my taxable account since I'm not yet retired, so there it remains. I do redirect dividends/cap gains elsewhere, though
- I own IJJ which is e/r of 0.25%
- I own SCZ which is 0.4%
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Old 02-27-2018, 06:30 AM   #19
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Maybe not worth sweating, but I see VTI is 0.04% and BND is 0.05%. So say 0.045% for a 50-50 AA.

The difference between 0.25% and 0.045% on a $1M portfolio is $2,050 each year. Considering how easy it is to choose the low ER funds, it's an easy $2,050 per year. I think most of us routinely put in a lot more effort than that to save far less. And this savings keeps repeating itself, and grows as your portfolio grows.

Unless you have taxable gains to worry about, it seems like a no-sweat action.

Hmm, I hold some BRK in my taxable account, to limit divs for ROTH conversions. I guess it doesn't have an "ER" as such?

-ERD50
Well sure, lots of folks here jump through multiple hoops to save $2000 a year, and itís easy to get a portiofolio ER down below 0.05% these days.

But darn those pesky capital gains taxes!
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Old 02-27-2018, 06:35 AM   #20
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Well sure, lots of folks here jump through multiple hoops to save $2000 a year, and it’s easy to get a portiofolio ER down below 0.05% these days.

But darn those pesky capital gains taxes!
One way I like to think about it is to put the dollar amount in terms of how many weeks of expenses is the e/r equivalent to this year?
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