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Expense Ratios and 12b-1 fees
04-16-2016, 07:42 PM
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#1
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Dryer sheet wannabe
Join Date: Apr 2016
Posts: 22
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Expense Ratios and 12b-1 fees
I'm interested in varying viewpoints on this question....
How much do expense ratios and 12b-1 fees drive your mutual fund decision making?
I have done some math as I am looking to move from my 0.9% private advisor. One of the things I do get by using him is that I can get advisor class or F class shares. These typically have lower overall expense ratios and no 12b-1 fees associated with them. The math says that with the same portfolio I have today, moving from my current guy to Fidelity of Schwab would cause me to have to buy the more common class of shares, and I would pay an additional $1500 in mutual fund fees annually. Still less than I pay my guy now, and I am sure I will be able to find similar funds with lower fees. But how much influence do you let the low expense ratio have ?
Thanks for great banter and insight. Fire away !
PB
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04-16-2016, 08:09 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2008
Location: No fixed abode
Posts: 8,765
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I find them critical. If the fund has 12b-1 fees, I don't buy it. If the fees are above .1% or so, I don't invest. But since I invest in Vanguard (mostly) index funds, it's not an issue. If you're going to invest in high cost funds like those listed in the table, it's probably not an issue. Overpaying is overpaying, so what's a little 25 or 35 basis points more. Your lowest cost fund is about 4 times more expensive than mine.
If you aren't going to change funds when you move away from your advisor, I don't see the issue. If you're already in the F class funds, wouldn't you still be in them after you move them? If you have to sell them in order to get away from the advisor, why not buy lower cost funds to replace them? Buying a high quality low cost index fund will save you a ton over time, and it will probably beat your equivalent active managed fund over the long run.
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"Good judgment comes from experience. Experience comes from bad judgement." - Anonymous (not Will Rogers or Sam Clemens)
DW and I - FIREd at 50 (7/06), living off assets
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04-16-2016, 08:23 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,891
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I don't understand. You went from 0.9% private advisor fees, to "pay an additional $1500 in mutual fund fees annually"?
Are you saying you'll pay $1500 added, but save 0.9% (how much is that in $?)? What are you comparing?
What funds are you talking about going from/to?
IVV has an ER of 0.07%. IVV Profile | iShares Core S&P 500 ETF Stock - Yahoo! Finance
Color me confused (or is it the Elijah Craig I'm sipping?).
-ERD50
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04-16-2016, 08:46 PM
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#4
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Dryer sheet wannabe
Join Date: Apr 2016
Posts: 22
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Quote:
Originally Posted by ERD50
I don't understand. You went from 0.9% private advisor fees, to "pay an additional $1500 in mutual fund fees annually"?
Are you saying you'll pay $1500 added, but save 0.9% (how much is that in $?)? What are you comparing?
What funds are you talking about going from/to?
IVV has an ER of 0.07%. IVV Profile | iShares Core S&P 500 ETF Stock - Yahoo! Finance
Color me confused (or is it the Elijah Craig I'm sipping?).
-ERD50
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1st, and most important, I compliment you on your bourbon selection. Elijah Craig is #2 in my top 5 bourbons. A FINE FINE, distilled beverage. If you haven't tried 1792 (sometimes called Ridgemont Reserve), you'll want to find some. That's my #1.
Other items, the 0.9% currently results in about 2k a year, so the same same rise in fees is still less than what I am paying my guy now. Add to that new funds of similar performance families but with much lower expense fees, I'll save more. Current holding are in the spreadsheet. The sheet is just a compare of current portfolio to that portfolio without access to Advisor class versions of the funds. Hope that helps.
I am new to being very active in managing my funds, so the my evolving to the low expense low cost, world is a learning experience.
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04-16-2016, 09:21 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,891
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OK, thanks for the Bourbon advice. I know very little about spirits (am a craft beer guy, and home-brewer), I think I saw this at Costco recently, and just decided to go for it. I guess I got lucky!
So the 0.9% advisor fees are costing you ~ $2,000, plus the ERs. You could go with that IVV, and total expenses would be less than $200.
OK, you'll probably want to blend that with some fixed income, but that could also be done at very low cost.
Read up on active managing versus passive if you want, studies show that few managers are able to beat broad market indexes over a 5 year time frame, and fewer yet are the winners in the next 5 years. You will likely do as well, probably better since you won't have the drag of all those fees. Even if your choices are not optimal - w/o that drag, they don't need to be to come out ahead.
The longer I am in this, the less fussy I am about what I'm invested in. Broad market index funds get the job done for me. If you do some runs in FIRECalc, with various AA's, the results are pretty similar over a range of values. It's not like a 5% shift one way or the other is going to make/break you, there's no magic approach. But an added drag of +1% fees (your 0.9% plus the ERs) can make a big difference over time.
-ERD50
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04-16-2016, 10:04 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2013
Posts: 11,078
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Like the rest 12B1 fees, trailing sales fees, loads et al, no way. These are the hooks advisors get you with in addition to what you think their fees are. So yes you can buy that fund yourself and save those fees and get the same basic performance sans fees. Great first step at saving on fees.
In order to do that I believe you will need to transfer or exchange from class (C? to F?). Consider your taxes if any.
Then I'm assuming these are all managed funds is that where you want to end up? You can get the same or arguably better performance and save even more money and put it in index funds or ETf's from Vanguard, Fidelity, Schwab. Do you feel comfortable doing that? If not do some research, chances are that you will do better than your advisor did just in a simple couch potato portfolio. It can be that simple.
Remember this:
Investing is not difficult, your advisor made it seem so much harder than it is!
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04-17-2016, 12:04 AM
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#7
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Recycles dryer sheets
Join Date: Nov 2014
Posts: 150
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Hi PapaBear67, welcome to the forum! I've been watching your other recent thread and think it is a wise move you're considering, getting out of active management and moving closer to do-it-yourself investing. I strongly recommend the book, Bogleheads Guide to Investing. It is written for an entry-level investor and gives a great foundation on index investing.
For me, the fees are very important and, once I figured out about expense ratios, 12b1, and front- and back-end "loads" I was able to dump my costly funds and pick cheaper alternatives.
One issue you may be struggling with is the "break-up" with your advisor. You've got to put you & your needs ahead of the advisor. The advisor has a very vested interest in keeping you onboard, because they are getting $2000 a year from you. If you were in low cost index alternatives, you could be putting upwards of $1500 of that back into your account each year. You need to look at this from that angle. You've given advisors enough of your money and now its time to give that to yourself. Forever, going forward.
Another gotcha that will be thrown your way is the cost of redeeming your investments... the 12b1 fee. Know that low cost funds simply don't have such barbs that give a final prick on the way out. You may have to pay those, likely, to get out of your current investments but in my opinion don't let that deter you - instead, treat it as another instance of the financial toxicity that permeates these high cost funds. Even the Band-Aid hurts/costs with such funds when you eventually take it off.
Let us know what other questions or concerns you have. Cheers!
PS - I've found the Bogleheads wiki (like Deadheads; the "followers" of John Bogle's endorsed style of index investing) very helpful: https://www.bogleheads.org/wiki/Getting_started
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The kids used to call me Captain Slow; now they also use Captain Cheap. I tell them, "Talk to the portfolio!"
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04-17-2016, 02:10 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2015
Location: Michigan
Posts: 5,003
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I definitely consider fees. You should find that Vanguard and Fidelity have rather low fees for mutual funds, and that if you can find ETF's that mirror what you hold now, you will likely find even lower fees there, and some places trade them with no commission.
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"The mountains are calling, and I must go." John Muir
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04-17-2016, 02:17 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,674
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Quote:
Originally Posted by ERD50
But an added drag of +1% fees (your 0.9% plus the ERs) can make a big difference over time.
-ERD50
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The elephant in the room is that these fees are recurring. They are not just a one time event, but happen every day that you are invested. The accumulation effect is the real killer.
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Part-Owner of Texas
Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx
In dire need of: faster horses, younger woman, older whiskey, more money.
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04-17-2016, 02:24 PM
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#10
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Thinks s/he gets paid by the post
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,893
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Quote:
Originally Posted by mickeyd
The elephant in the room is that these fees are recurring. They are not just a one time event, but happen every day that you are invested. The accumulation effect is the real killer.
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Give that man a cigar !
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Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
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04-17-2016, 03:05 PM
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#11
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Full time employment: Posting here.
Join Date: Apr 2014
Location: Houston
Posts: 958
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Quote:
Originally Posted by PapaBear67
How much do expense ratios and 12b-1 fees drive your mutual fund decision making?
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I'm a low cost believer. Won't consider buying anything with a front end fee, back end fee or 12-1b fee. The highest expense ratio I currently pay is 0.32% for a Vanguard managed fund that I wanted to try out. Rest of what I own are all in the 0.1% range.
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04-17-2016, 03:10 PM
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#12
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Moderator
Join Date: Feb 2010
Location: Flyover country
Posts: 25,356
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Quote:
Originally Posted by Whisper66
Won't consider buying anything with a front end fee, back end fee or 12-1b fee.
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+1
However, I'm willing to pay a higher expense ratio for a high performing fund that gives me added diversification. These are small percentages of the total portfolio, but I have a few that are up in the 70-80 bp range. My total portfolio ER is still just 16 bp, and is likely to remain in that range.
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Expense Ratios and 12b-1 fees
04-17-2016, 05:52 PM
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#13
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
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Expense Ratios and 12b-1 fees
I bought one ETF by mistake, by the time I saw the expense ratio I plotted my way to get rid of it., and I did. Yes it matters, I'm older and supposedly wiser.
Sent from my iPad using Early Retirement Forum
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Just another day in paradise
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04-17-2016, 09:17 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,371
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There are so many no-load, low-fee funds without 12b-1 fees that I would never invest in a fund with a load, high fees or 12b-1. I'm not drinking that kool-aid.
I have 4 funds that are niche, specialty funds that I pay 0.24%, 0.33%. 0.43% and 0.69%. All the rest are 0.05% to 0.16%.
My Vanguard Portfolio Watch report says that my weighted average cost is 0.13%.
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If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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