YTD return

[smooch]

We have most of our savings with Merrill Lynch. Today I asked our FP to give me the YTD % return on our portfolio. It is 4.35%. We have about 50% in equities. That seemed really low to me, but then I checked Vanguard Total stock market index and total bond market index and the average return of the two comes out to about the same thing. Am I reading these right? Would that return be about right for a 50/50 portfolio? I am trying to convince my husband that we should switch to Vanguard, but now I am not so sure.

[Sisyphus]

Don't forget to compare the YTD return AND the expenses.

Vanguard has a lot of customers who moved money there because the low expenses increased their returns by having minimal fund management and 12b-1 fees, even though YTD returns may be comparable.

Good luck!

[LOL!]

4.35% sounds about right. However, a relationship with an investment firm should not be based just on a YTD return. As Sisyphus noted, expenses can be important as well.

[smooch]

This is where I get confused. Would the management fees not be deducted before the YTD returns are stated. If not, do I look up the fee for each and subtract it from the YTD % to get the real return? Thanks so much for the quick responses.

[LOL!]

Quote:

Originally Posted by smooch This is where I get confused. Would the management fees not be deducted before the YTD returns are stated. If not, do I look up the fee for each and subtract it from the YTD % to get the real return? Thanks so much for the quick responses.

The annual expense ratio associated with a fund will be deducted before the YTD returns are stated.* However, in general,* front-end loads and back-end loads WILL NOT be deducted from the calculation.* Also I think that any "wrap fees" or other expenses charged quarterly or annually will not be deducted from the YTD return.

There was an earlier thread on YTD return from the beginning of November.* There was quite some controversy over how to calculate YTD return, especially if you added to and withdrew from your investments.

And another point: I didn't know that ML had FPs.* I knew they had financial salesfolks advisors.* Is your FP a Certified Financial Planner?

[wildcat]

smooch -

One other area to consider is whether or not you are being directed towards the best investment products within your allocation. Most firm, such as Merrill, will make you encourage you to just buy Merrill funds. With that being said, Merrill's index funds, for example, exp ratios are considerably higher than Vanguard's if that is what you hold & have underperformed historically. Additionally, if you did want to continue working with ML but wanted to hold Vanguard index funds for the low exp rations you will probably pay a fee. So is it worth it to you given those 2 stipulations? Your YTD returns are not bad but look over a long time horizon and you will see how higher exp ratios can/will reduce returns.

[frayne]

Not to sound condesending but if I couldn't get or fiqure my YTD returns at any point in time myself, I'd be a bit concerned. That said you may just want to ask your FP what your return is, net after fees. Being the non trusting type I'd ask for it as a document.

[justin]

I'd be surprised if you're not paying over 1.00% per year in expenses at ML. Maybe 2% after you add in sales loads. A similar portfolio to the 50/50 stock/bond portfolio at VG would cost you 0.2% or so. Think of it like this - that same ML portfolio could have been invested at VG in some low cost index funds and your returns would have been 5.15%. Not a big difference each year, but when you compound that slightly higher yield every year, you're talking about a big difference.

Ultimately your returns are dependent upon what you are invested in. Odds are there is a fund at VG that is much cheaper expense-wise than what you have at ML, yet retains a similar investment strategy. I have accounts at Edward Jones, and they wouldn't even let me purchase VG funds. That was the hair that broke the camel's back. I opened up a VG account within a week after finding out my "full service" brokerage firm couldn't get me access to VG funds.

[smooch]

Justin, this is my thinking. I looked up the YTD return of the VG total stock market index and total bond market index. Averaged together, they came out to about the same as the % return on my ML protfolio. So I assume that if I had my portfolio divided between those 2 VG funds, I would have about the same return as ML. Is that correct? I have opened an account with VG and intend to move at least some of the portfolio, but I'd really like to understand if I can expect to do better.

[LOL!]

Your calculations seem fair as far as they go. However, the market has been volatile recently and gone up several percent in the last few weeks. So make sure that the Vanguard YTD covers the exact same time period as your ML YTD. We have a few Vanguard funds that have YTD as of the close of the market today:

Vanguard Windsor II: 7.0%
Vanguard S&P500 Index: 4.9%
Vanguard PrimeCap: 6.8%

Our other Vanguard funds (small cap, mid cap, international) have YTD returns of 7.5% to 11.3%, but we have added to them this year on the pullbacks of the general stock market. I'd be asking myself why my FP does not have my assets allocated among some higher return funds in the classic sense: large cap value, mid cap, small cap, international, international small cap, emerging markets, fixed income, etc. What would I be paying them for?

[justin]

Smooch,

It depends on what you are invested in at ML. If you're in total stock market-50% and total bond market-50% at ML, then you would have had a 3.9% return if you had bought VG funds.

On the other hand, if you would have chosen 25% VG Total stock mkt, 25% total international, 50% total bond mkt, you'd be at 4.9% YTD. If you sliced and diced and added in some of the mid caps and small caps and value funds from VG's "Domestic Stock - More Aggressive" category, you'd have a little higher returns. Large caps (which is what the total stock market index is for the most part) have not performed as well as mid caps, small caps, value, or international funds in general. My guess is that you are not in total stock market at ML, but rather in active funds that pick lots of mid and small cap stocks, and at least some international. Are you 50% bonds at ML? The long-term bond funds had about twice the YTD returns of the short term bond funds.

It is hard to compare how you would have done at VG unless you break down what you own at ML into asset classes that you would buy at VG, and then compare the two returns - apples to apples. Currently, it seems like you are comparing apples to oranges.

Post your portfolio if you want (in percentage terms of what you own), I'm sure some here can take a look.

[smooch]

I really appreciate your responses. Here is out ML portfolio:

ML Basic Value MABAX 5%
ML International MAIVX 5%
ML Small Cap Growth MASWX 2%
ML Value Opp MASPX 2%
ML Global Allocation MBLOX 12%
Pimco Real Return PRTNX 16%
Oppenheimer Int OIBAX 15%
Calamos Growth CVGRX 10%
Calamos Growth & Income CVTCX 18%
Van Kampen Growth ACGIX 15%

We have another 20% of the total portfolio with Fidelity and VG.

[justin]

I put your holdings into Morningstar Xray. You are paying on average 1.24% annually in expenses for these funds. It looks like they are all load funds - either a 3-5.75% upfront charge when you buy, or a 1% charge when you sell. You can get a similar VG portfolio for about 1% less per year, and you won't have to pay sales charges to buy or sell. 55% stocks (40% US, 15% foreign). The rest bonds, cash and "other". Going forward, I'd move my money from ML to fido or VG. Definitely don't buy any more through ML. Invest new money at Fido or VG (anywhere you can buy with no huge commission or expense ratio).

[smooch]

I should have mentioned that we paid no load for these funds and we have no back end load. We started out in a Managed Fund Account, so got the institutional shares with no sales charge. Then our Financial Planner closed down the MFA account. But 1.24 is higher than what I thought. I averaged all the expense ratios for these funds given on Morningstar. I came out with something lower than 1.24, but maye I didn't do it right. I am going to begin moving to Vanguard. Thankyou so much!

[Bourne]

My FA managed accounts returned 12.15% YTD. As I pay 1% wrap fee, the effective return is ~11%.

For the record, my self managed 401K has returned ~8.5% with a 60% index, 20% small cap & 20% emerging markets. As my FP has slowly moved out of small caps in the past month, maybe I'll do the same too.* :P

[preben]

You can not just average them out to get the e/r as they have different weightings in your portfolio. Could that be the reason for the different number? Cheers!

Quote:

Originally Posted by smooch I should have mentioned that we paid no load for these funds and we have no back end load. We started out in a Managed Fund Account, so got the institutional shares with no sales charge. Then our Financial Planner closed down the MFA account. But 1.24 is higher than what I thought. I averaged all the expense ratios for these funds given on Morningstar. I came out with something lower than 1.24, but maye I didn't do it right. I am going to begin moving to Vanguard. Thankyou so much!

[justin]

Yeah, I used the value-weighted expense ratios to get 1.24% You can't add all 10 up and divide by ten.

[MRGALT2U]

Had lunch yesterday with an old friend. He's about 68, retired at 62.
Until recently he had his portfolio with "big name" national firm.
He let them manage the money and they had him mostly in
equities. Recently he closed his account and put most of his money
in laddered CDs. He said over the years with "Mega Financial
Services Inc" he netted an average of 2% per year. Pretty
pathetic!

JG

[smooch]

Justin: What is Morningstar Xray? I looked on the site, but I don't see it.

Frayne: Is there a formula to calculate YTD returns? We switched 1 fund, so I didn't know how to account for that.

Thanks!

[justin]

Quote:

Originally Posted by smooch Justin: What is Morningstar Xray? I looked on the site, but I don't see it.

I don't know how to get there besides googling "Morningstar Xray" and it is always the first or second link. The tool breaks your portfolio into asset classes. Input = tickers for your mutual funds and dollar amounts; output = cash/bonds/stocks %'s, size distribution of stocks, growth/value tilt of stocks, credit length and risk for bonds, total portfolio expense ratio, comparison to benchmark SP500 portfolio.