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02-06-2007, 04:18 PM
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#1
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Recycles dryer sheets
Join Date: Jan 2007
Posts: 481
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Expenses
I know you should look for funds with low expenses. Am I figuring this out correctly? Assume you had 10,000 to invest:
FUND A has expense of 1.5% and returned 11% - you would have $11,100 before expenses and $10,933.50 after expenses
FUND B has expense of 1.0% and returned 10.8% - you would have $11,080 before expenses and $10,969.20 after expenses
FUND C with expense of .10% and returned 9.5% - you would have $10,950 before expenses and $10,939.05 after expenses
So, ultimately, the return - expense is what you should really be looking at. If FUND B consistently (which I think is the key here?) returned 10.8, it would be the best choice, although not the lowest expense?
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02-06-2007, 04:21 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Apr 2006
Posts: 1,490
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Re: Expenses
returns are figured after the expenses have been deducted.
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02-06-2007, 04:26 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: Feb 2004
Location: Portland, Oregon
Posts: 7,111
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Re: Expenses
In most cases the expenses are taken out before the return calculation (exception are transaction fees, loads, 12(b)1 fees).
The import of expenses is that the fund manager must earn the difference in investments to come out ahead. For example, fund C has an expense of 0.1% and fund A 1.5%. The manager of fund A must CONSISTENTLY earn more than 1.4% than the manager of fund C.
Historically managers have not been able to beat indexes consistently. Index funds have very low expenses.
__________________
Duck bjorn.
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02-06-2007, 04:56 PM
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#4
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Recycles dryer sheets
Join Date: Jan 2007
Posts: 481
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Re: Expenses
So the published return is after the expense. That's what I wasn't sure about. I pretty much stay with index funds, but I have some other choices in our 401ks and the non-index returns seem to always be much better. Before I spent too much time going through the stuff, I wanted to be sure I knew what I was looking at. Thanks!
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02-06-2007, 04:57 PM
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#5
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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Re: Expenses
What D and Brat said, but caveat emptor. The way expenses are presented can be deceptive. Returns net of expenses is what you want to use to compare funds, and these are usually embedded in the total return numbers.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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02-06-2007, 06:03 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: Feb 2006
Location: Washington, DC
Posts: 11,318
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Re: Expenses
Quote:
Originally Posted by KM
So the published return is after the expense. That's what I wasn't sure about. I pretty much stay with index funds, but I have some other choices in our 401ks and the non-index returns seem to always be much better. Before I spent too much time going through the stuff, I wanted to be sure I knew what I was looking at. Thanks!
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There may be a bit of survivor bias at play here. The funds yo see are the good ones that have survived a few years -- but they may not survive this year, or next. I also have a number of managed funds (load funds I got into before I knew better). The funds the advisor suggested were always highly rated and generally performed fairly well. But I have been closely monitoring them since joining this group. I have concluded that, overall, I would do better with indexes or a simple target retirement fund. This year, for example, a high flying Calamos fund with more than $100K did very poorly. It dragged my overall averages below what I would have gotten with a TR. One of the other managed funds also did poorly. I have decided to pull all of these funds out and move to Vanguard. I still have some losses I accrued in 2001-2002 that I can use to offset most of the gains so the move will be fairly painless.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
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02-07-2007, 08:27 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
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Re: Expenses
I've yet to see an expensive fun outdo its index over 10+ years, aside from Bill Millers current fund and Peter Lynch's Magellan. Lynch ran out of luck. So will Miller.
If you're paying over .50% (or less than half that for common US funds) you're going to be financially sorry sooner or later.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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