Expense Ratios

[Arc]

In 2008 am determined to get more serious about asset allocation and have created portfolio in Morningstar Portfolio X-ray - seems like an excellent tool. My overall expense ratio is .76% currently - approx half of what they say a "similarly weighted porfolio" might be. While that feels OK - wanted to get your folks opinion. Is .76% good or still too high?

On another note, please clarify for me what the Total Expenses are for the fund below. Is it .61% ? Or is it .61% plus .38%? Please ignore the % "after reductions" for now.

Thanks as always.


Expenses & FeesFees Management Fee0.38%
Expenses & Fees Expense Ratio as of 09/30/2007 0.61%
Expense Ratio after Reductions as of 07/31/2007 0.60%

For a mutual fund, the expense ratio is the total annual fund or class operating expenses (before waivers or reimbursements) paid by the fund and stated as a percent of the fund's total net assets. Where the investment option is not a mutual fund, the figure displayed in the expense ratio field is intended to reflect similar information. However, it may have been calculated using methodologies that differ from those used for mutual funds. Mutual fund data has been drawn from the most recent prospectus. For non-mutual fund investment options, the information has been provided by the trustee or plan sponsor. When no ratio is shown for these options it is due to the fact that none was available. Nevertheless, there may be fees and expenses associated with the investment option.

 

[LOL!]

In M*, I created not only our portfolio, but a couple of other portfolios with similar asset allocation. For one of them, I used a Vanguard portfolio from fundadvice.com. That VG benchmark portfolio had an expense ratio of about 0.3%. A 4-fund ETF equity portfolio (VTI, VEU, VBR, GWX) has an expense ratio of 0.09%. Our portfolio had an expense ratio of 0.62%, but all our 401(k) funds have expense ratios above 1%, so there is not a whole lot we can do about that.
So those are some comparisons for you: 0.09%, 0.3%, 0.62% and yours 0.76%.

[Edit: the 0.09% expense ratio as reported by M* is bogus. It gives the expense ratio of VEU and GWX as 0% and that's not correct. Looking up the fund e.r.s, one gets 0.26% for the 4-etf portfolio.]

In your other question, I would take the 0.61% e.r. as the one to use.

 

[mickeyd]

Hey Arc,

My overall expense ratio is .76% currently

MY ER @ Vanguard is around .17%, but it was not always that low. Once that I finally realized that active managers added nothing to my portfolio returns, it was easy to become totally passive and an indexer for life.

 

[walkinwood]

My portfolio has an expense ratio of .54 % - ie. expenses weighted by percentage of portfolio. My Vanguard fund expenses are definitely on the lower side, but I have some other funds that have done well for me, but have higher expense rations. They carry a lot of capital gains so I hesitate to liquidate and move into index funds.

 

[Cb]

Our portfolio ER is 0.27%, and will come down a bit when my wife retires and we rollout her 401K to Vanguard.

Cb

 

[dizzy]

Our overall ER is also .17%. Mostly Vanguard indexed stock and CA munis, would be lower but for some higher expense Fidelity stuff in 401(k)'s... I love how the portfolio watch tool at Vanguard rubs it in your face -- "Your savings, compared with the costs of the industry average mutual fund, would have been approximately $$$ during the past year."

dizzy

 

[FinanceDude]

Our overall ER is also .17%. Mostly Vanguard indexed stock and CA munis, would be lower but for some higher expense Fidelity stuff in 401(k)'s... I love how the portfolio watch tool at Vanguard rubs it in your face -- "Your savings, compared with the costs of the industry average mutual fund, would have been approximately $$$ during the past year."

dizzy

Does it also apply it's current yearly return to the average return of funds in it's class??

 

[mathjak107]

ill bet it doesnt,, all i know is my actively managed fidelity mix beat my etf index mix for 2007 by a wide margin

 

[Arc]

Another question. I've always assumed that published fund annual returns are net of these Fees and Expenses. Please correct me if I am wrong.

 

[mathjak107]

no they are bottom line and include expenses

 

[Lsbcal]

Advice to OP: don't obsess on ER as it's total return that counts.

For example, you could invest in one stock and if it was GOOG last year you were a big winner. If it was a financial, too bad. But the ER=0 in both cases.

Obviously the example is for a highly non-diversified portfolio. ER is important but not the only thing to look at. I know you know this but sometimes we get caught up in optimization -- I do it all the time. Your AA and your analysis of your risk tolerance is probably 99% of the game.

I could go on but most of the time people don't really want my advice as they are just looking for confirmation.

 

[Maurice]

Just checked and my overall expense ratio on my directable portfolio is 0.145%. Its that low because I buy only index funds and ETFs, use Vanguard where I can, and buy my own bonds.

(I say directable because 50% of my assets are in a single concentrated and locked up position - it has an ER of zero, of course, but I didn't want to include it)

 

[mathjak107]

i wouldnt worry about your expense ratio as much as id worry about your total return. paying for active managent isnt a bad thing if your getting something for it in return. while index and unmanaged funds do well in an up market they can do horrible in a down market. there is noooooo chance of not falling as hard as the markets and there generally is no chance of making money in a bad market. paying a manager who does is worth it.

bottom line forget expenses and look to see if the expenses are justified by a better return.

 

[Maurice]

Be careful not to confuse index funds with total market - there are lots of indices out there. FWIW, my equity allocation has outperformed the S&P in up markets and down.

You may have had consistent luck with managed accounts, but the data suggest that such a result is unlikely.

 

[mathjak107]

well we had the managed vs unmanged discussions many times and the numbers that are bantered about as statistics are flawed in many ways.
my actively managed funds have beat unmanaged for over 20 years now , not every year but overall. they tended to lag sometimes in good markets but made it up in the drops.

its not about just picking an active fund at random, its about having a portfolio of funds and then fine tuning them just slightly like nudging a ship into port to respond with other funds and managers that have different weightings to match the big picture and not just the noise. you didnt have to be an economic major to know last august to lighten up on financials. very hard to do in my indexes where financials were 38% of the s&p

last year my active portfolio owned beat my etf portfolio. its not just about 1 fund its about a complement of actively managed funds.

i still maintain two seperate portfolios for just that reason, an active one and a low cost etf one

its far easier to get broader coverage with an index fund , you may need more than 1 actively managed fund to cover the same spectrum . then you have to compare the performance of both to your index.

 

[Coach]

Arc, I don't think your overall expense ratio is a meaningful number. It's just the product of your asset allocation and fund choices. You should evaluate each fund choice individually.

Coach

 

[W2R]

So those are some comparisons for you: 0.09%, 0.3%, 0.62% and yours 0.76%.

As yet another comparison, my portfolio plan has an expense ration of 0.16% according to Morningstar. A lot of it is Vanguard index funds.

 

[Dude]

my actively managed funds have beat unmanaged for over 20 years now , not every year but overall.

Just curious, by how much would you say, in terms of average annual total return if possible? I'm in my 30s, still in the accumulation phase, and am trying to decide how much to plunk in index funds vs actively managed funds. Thanks.