I tnink I need help

[Smoochie]

I've been reading all of the posts here and now I'm really having a fit. I started looking at the expense ratios on my various investments. My current 403B is with Fidelity. It has 100k, which is about 12% of our portfolio. Just as an example, one of my funds is Fidelity Value Strategy (FSLSX). YTD return is .03%. The management fee is .58% and expense ratio is .84%. Then I see that the total cummulative return YTD is -1.40%, which works out to .03% - .58% - .84%.

Am I understanding the fees above correctly? The 1 year return on the same fund is 12.64%, which seems excellent to me.

I have Vanguard Funds available to me also, so I'm going to research them.

 

[Cut-Throat]

I think you are in the ballpark. I looked at Yahoo's Financial site for this fund. It gives the expense ratio as .76%

It does match your number of -1.40% for YTD Return. As well as your number for the 1 year return. I would research all your funds on the same site as it may be easier to compare.

 

[cute fuzzy bunny]

High management fees stink!

(Am I the only one that thinks "Death To Smoochie!!!" every time they see this posters name? )

 

[KB]

No, I think Death to Smoothie too. Only I didn't see the movie....I don't like sad movies.

 

[Helen]

Smochie,

I put a post on the Vanguard Diehard forum a while ago.

http://socialize.morningstar.com/Ne...v.asp?forumId=F100000015&convId=108080#629363

Basically I was trying to figure out if it made sense to fund a 403b with a higher expenses or put the money into an after tax account at Vanguard. It turned out that once they reduced the fees it worked out a little better to fund the 403b.

-helen

 

[Paul]

YTD Return (10/29/2004): 0.52%

I think this is the return after all the expenses.

 

[azanon]

Under 1% total expense ratio with no upfront loads is a very reasonable expense for an actively managed stock fund.  Stocks arn't doing so great this year, so dont get too bent out of shape that your return goes negative when you take the expense out.

Real humans simply cost more than trained monkeys.  .2% for a monkey, under 1% for a human.  Take your pick.

 

[cute fuzzy bunny]

Vanguard Wellesley Admiral shares - .20% administration fee...fully managed fund. 8.72% return YTD after expenses.

They're out there...

 

[azanon]

Vanguard Wellesley Admiral shares - .20% administration fee...fully managed fund.

... with an initial deposit requirement of 250K dollars.

I see the non-admiral one is .3% expense ratio, which is good and fits my recommendation of below 1% for active management.

I look at about 10-15 different factors when i select a mutual fund.  Long as i see below 1% expense ratio and no load, that's a "check' on that one factor, and i move on to the other 9-14.  

There are some really wonderful funds out there with .65-.99% expense ratio that it would be a shame to eliminate due to index bias.  

The majority of index funds beat active management ones.  But those statistics include all the consistenty poor performers, and the ones that charge outrageous expense ratios (2-3% or more) with loads on top of that.  Of course its hard to beat an index when you're 3% in the hole from the getgo!

I will admit i am considering indexing for an emerging market fund. I just dont have a reasonably priced alternative with the fund companies i participate in now. They want about 2% or more expense ratio for the privaledge.

 

[Smoochie]

Vanguard Wellesley Admiral

I looked at that one yesterday. I am going to be talking to a Vangaurd rep next week, so I'll do some more investigating.

Thank you for the advice!

 

[cute fuzzy bunny]

If you want something racier than Wellesley, check out Wellington. Both invest in large cap value stocks and intermediate bonds, managed by the same company for vanguard. Wellesley is bond heavy, Wellington is stock heavy...about 35/65 stock/bond for wellesley, about 60/40 stock/bond for wellington. Wellington charges a little more than wellesley.

I agree one should not eliminate funds from consideration due to management fees, but I havent seen any funds that charge over .5% that consistently do better than ones that charge half that or less.

Dodge and Cox Balanced (dodbx) at ~.54%, Wellesley and Wellington are the only funds I've seen with a considerable track records that do well in "all seasons". Oakmarks balanced is good at ~1%, but not as good as dodbx, wellesley or wellington for less than half the management cost.

 

[Smoochie]

Thanks, TH. I may just divide what I have and my future contribution (hopefully not for too many more years) between the 2 Vanguard funds.

 

[cute fuzzy bunny]

A few years ago after some extensive snooping, evaluating and consideration, I came to the conclusion that splitting ones money 50% in wellesley and 50% in wellington wouldnt be too bad of a mix...brings you to roughly 50% stocks and 50% bonds.

I later found out this is a well known recommendation, particularly among 'old money' investors. Wellington was one of the first mutual funds, launching in the 1920's, so a lot of people invested in that a long time ago, and for a long time. When Wellesley launched in 1970, many of those were ripe for something a little more conservative and started shifting money from wellington to wellesley.

 

[unclemick]

Yep - I agree with TH. The version I saw was Wellesley/Dodge and Cox Balanced(closed to new investors) - no down years for the last ten.

Conservative and attempts to capture the persistence of the value premium thru the decades.

A Wellesley/Wellington should work - if you are ER'd or have a short span time to ER (under say 15 yrs) or are just plain conservative or 'heaven forbide' - a dirty bargin hunter/market timer waiting for better valuations.

 

[ESRBob]

Smoochie,
If you are looking for a good value fund to throw into the mix, I have always been partial to Vanguard Windsor II.  It outperforms the US Large Value Index by a percent or so each year, and charges about .45% annual fee. Return is about 8.5% ytd, and yield is 2.1%. (Sounds a lot stronger than your Fidelity value fund, this might be one of those teams that defies the averages over the long run).

Because value investments appear and disappear as a company's stock price rises and falls in response to its rising and falling fortunes, (value opportunities arise when the price has fallen out of proportion with the company's bad news, or failed to rise in proportion to the good news), I feel that value funds are the one place where it is worth paying for an active manager.  Value indexes get set annually, and use book-to-market type screens to determine what is a value stock (High Book-to-Market ratio).  Active value managers know the times to buy and sell occur in windows, so a value fund will look different from a value index.

You also hope your value manager can sometimes differentiate between an Enron and a Tyco -- the former looked real cheap for awhile and kept getting cheaper-  all the way to zero.  (Also known as a 'value trap'.)   The latter revived and turned into a good investment for brave value players.

Whether you go the Wellesely/Wellington/Dodge Cox route, or throw some Windsor II into the mix, you are on firm ground with any of these approaches.

ESRBob

 

[azanon]

I recommend against Value at this time, with the exception of energy. Value stocks have a remarkable runup over the past 5 years or so, but if you consult value vs growth comparisons over several decades, it is clear that they ocilllate back and forth. Growth is long overdue.

Herd mentality in the market is very dangerous, and buying value now is showing up to the party when everyone else is walking back out to their cars. America seems to be real upbeat after the election, and with Iraq coming to a close, I forsee growth being the winner over the next two years.

 

[Martha]

America seems to be real upbeat after the election, and with Iraq coming to a close, I forsee growth being the winner over the next two years.

You and I must live in different countries.

 

[azanon]

You and I must live in different countries.

Its possible?  In our country, they have this neat thing called the internet, and when you type msn.com, you see the dow is up 147 points this morning.   A little Market 101; the dow doesn't break 100 points in 20 minutes when our country is in a state of gloom.

I voted for Kerry so go be bitter to someone else.

 

[Martha]

Its possible? In our country, they have this neat thing called the internet, and when you type msn.com, you see the dow is up 147 points this morning. A little Market 101; the dow doesn't break 100 points in 20 minutes when our country is in a state of gloom.

I voted for Kerry so go be bitter to someone else.

I am planning on doing exactly that this weekend---we're getting together with friends. I don't have a clue about the market and why it does what it does, but in my neck of the woods we are far from upbeat. I also can't believe that the war in Iraq is coming to a close.

But I will leave this alone--I know that this board has been relatively careful about getting into messy political discussions.

 

[haha]

In our country, they have this neat thing called the internet, and when you type msn.com, you see the dow is up 147 points this morning.   A little Market 101;  the dow doesn't break 100 points in 20 minutes when our country is in a state of gloom.

I voted for Kerry so go be bitter to someone else.

Aside from your overall sarcastic tone there is a flaw in your reasoning. The Dow Jones Average is not the country.

Reading what some voters said about why they voted as they did I can only conclude that there has been a pretty thorough logic disconnect in many of our citizens. Maybe the happy DOW is equally meaningless, just one more happy-talk noise.

Mikey

 

[azanon]

Aside from your overall sarcastic tone there is a flaw in your reasoning. The Dow Jones Average is not the country.

First, sarcasm is sometimes appropriate and called for, and second the Dow (s&p500, wilshire 5000, whatever) the day after the election can be interpreted to be very much a pulse of how the country is feeling about it, as a whole.   I can go into why they are feeling that way, but it'd be drifting.  In a nutshell, a bush vote is a vote of confidence that we're moving in the right direction (cause the people didnt demand a change) and that is positive.

Apparently, i dont agree with the masses since i voted for Kerry, but if the majority thinks we're heading in the right direction already, then the market is going to pick that up, anticipating the improvements on the horizon.

Reading what some voters said about why they voted as they did I can only conclude that there has been a pretty thorough logic disconnect in many of our citizens. Maybe the happy DOW is equally meaningless, just one more happy-talk noise.

Nope, its as i said.  The market is very much susceptible to how everyone feels about the near future, and clearly knee-jerks when there are events that cause change within our country.

 

[Cut-Throat]

I recommend against Value at this time, with the exception of energy.  Value stocks have a remarkable runup over the past 5 years or so, but if you consult value vs growth comparisons over several decades, it is clear that they ocilllate back and forth.  Growth is long overdue.
Herd mentality in the market is very dangerous, and buying value now is showing up to the party when everyone else is walking back out to their cars.

I certainly am no expert in Stocks or investing, but I've got to ask a question.

It is my understanding that if a Value Stock's price gets run-up because everyone is buying it, it is no longer a value stock. In fact if enough people 'come to the party' - Doesn't the value stock turn into a growth stock? - Doesn't this kind of go against your premise of the 'herd mentality'

In my mind buying value stocks directly goes against the herd mentality. Their prices are cheap because the 'herd' does not want them.

Correct me if I'm wrong.

 

[azanon]

I certainly am no expert in Stocks or investing, but I've got to ask a question.  

It is my understanding that if a Value Stock's price gets run-up because everyone is buying it, it is no longer a value stock. In fact if enough people 'come to the party' - Doesn't the value stock turn into a growth stock? - Doesn't this kind of go against your premise of the 'herd mentality'

That's an excellent question (really, no sarcasm, hehe) and addresses a misunderstanding of what constitutes a value or growth stock.  

A value stock isnt one that others dont necessarily want.  It can also mean it is a very well established company, that has been around for decades, and that tends to pass its profits on to its investors in the form of dividends as opposed to reinvesting everything back into the company.  There are small, value stocks too, but again that they are value will mostly be defined by the behavior of the company, and the market in which they are competing.

A growth stock, conversely, will more often be medium or smaller sized (but can be large) and will tend to be a company that is taking more risks to push into newer markets, pouring all its disposable income into further growth (little/no dividends), and often leveraging to push even further.  They are doing everything they can to maximize growth and outcompete others, but often take big risks in that process.

There are value stocks (companies) that are sometimes overpriced (say if GE gets expensive relative to its history or to its sector), and there are also growth stocks that can often go on sale (like at the end of 2002).  But when that happens, that doesnt all of a sudden mean the company behaves like its counterpart.  Those darlings on the nasdaq that got hammered 75% are still growth stocks after all the damage was done.  

Azanon

(edit) but i admit, "growth" and "value" are arbitrary terms, if that is your point, and i understand that. But still, most companies would still be best characterized by one or the other before the 1999 crash, and would still be the same characterization afterwards.

 

[unclemick]

Nope - that's one definiton of value in my mind. Another label - ala David Dreman is contrarion - when an otherwise 'good' stock falls into disfavor. Given the variations on the theme - 'value' can be an elusive definition. I usually go with low P/B and P/E. Of course - in the words of Warren Buffett - "sometimes a wet cigar (butt) is really a wet cigar".

 

[azanon]

Yeah, this can get into semantics. For example, I like nVidia Corp (nvda) and i'm watching it for a great buy point. I would say nVidia is inherently a growth stock/company from day one, but conversely you could say when they dropped from 70 dollars a share to under 10, they represent a good "value" and maybe that makes them a value stock in some folks minds. I wouldnt agree with that, but then its just getting into opinions.