Keeping what you can

[Bookm]

Not necessarily costs of retirement, but more of potential costs during retirement. The latest Paul Farrell article over at cbsmarketwatch.com is about saving money on investment expenses in retirement. Farrell compares the average costs of using an active manager charging an advisory fee of 1% of assets combined with the costs of the average managed mutual fund, using a 1 million dollar portfolio.

When adding the costs together, he comes up with $23,000 for the first year, Actually I say the first year, not Farrell, because obviously each year's total expenses will be different since the total portfolio value will be different.

Farrell also mentioned the Coffeehouse portfolio, consisting of a 60/40 split, where the 40% is in an intermediate-term bond fund like VBMFX, and the 60% is divided evenly among 6 equity asset classes (LB, LV, SC, SCV, REIT and INT'L). Using all comparable Vanguard funds, you'd pay $2,270 in expenses that first year- roughly 1/10th of your expenses if you took the advisor route mentioned above. But wait, it gets better.

Since you'd have a total of $1 million held at Vanguard, some of your shares would be converted to Admiral class, providing even more savings. How much? Well, there are 5 comparable admiral class funds of the seven mentioned in coffeehouse-related articles. Using these 5 fund's ER, you'd now pay only $1,420 that first year, about 1/16th of the high-expense road.

Since we cannot control our portfolio's returns, we are reserved to accept what each sub-class of the market that we own gives us. We can control what we pay to enjoy (or suffer) those returns provided.

It may not the smartest, most intelligent way to go (remember, I'm only an indexer -mostly), but then again, what's so smart about paying over 1000% more than you need to for anything out there?

Bookm

[unclemick]

A subject worth repeating(fairly often). REHP homepage has an article somewhere about what fees/expenses cost you in retirement. And of course Bogle hammers away - for the savings phase mostly.

One of those things that can't be repeated often enough. Rebalancing costs, turnover, taxes due to investment moves are harder to get at - but still important.

[preben]

Good post Bookm!
I pursue to keep my overall e/r below 0.5%. This does not include commissions (making it 0.53% or so).

ETFs can help one get Admiral level e/r but naturally one needs to evaluate the commissions then - in FIRE one does not need to do a monthly trade - especially not if one can live of the interest+div. which comes to you at no charge.

The thought of giving away $15-30k/year (of 1M) to managers in Boss suits and sportscars, while I would live on the same amount (while taking ALL the risk) does not befall me well .

For a few asset classes the managed funds might make sense to me - but I still want it at resonable price.

Cheers!

[malakito]

My "TER" (put in quotes because it's fees+expense ratios where known, but excludes transaction costs and the expense ratios for two funds where the information is not easy to get) is 0.1466%, or under 15 basis points. Eventually it'll get down to about 12 basis points I think.

malakito

[cute fuzzy bunny]

I'm at ~.25% expenses. In a year and a half when I'm eligible to convert some smaller holdings to admiral shares I could get down to ~.18%. At this point though the .07% difference is not that big compared to some folks who are paying 1-2% for their fund holdings.

This is also pretty good considering that more than 80% of my holdings are in actively managed funds...

[preben]

Impressive!
My PCRIX(commodities), BRSIX(US micro), PEBIX(EM debt) and EEM are the main sinners - will switch EEM for the new Vanguard EM viper to save some there!
Cheers!

[Bookm]

th wrote:

This is also pretty good considering that more than 80% of my holdings are in actively managed funds...

What the... Are those active funds with Vanguard, or in a retirement plan? That's impressive.

Bookm

[cute fuzzy bunny]

Yep, my biggest holding is vanguards wellesley fund at ~.15% annual fees, and my second biggest is vanguards wellington fund at ~.17%.

Tough to beat for managed funds with great records that pump out excellent dividends.

unclemick...welllessssssllleeeeyyyyy