All in expense ratio

[KCGeezer]

I’ve been running searches for threads discussing ‘realistic’ expense ratios. I didn’t find a lot but that could easily be user error. I also tried to figure out how to make a poll but that didn’t work out either.

I know Firecalc has a default setting of .18 for expense ratio. I have seen comments where people referenced meeting or even going below that. I’m at .28 and with a couple of changes maintain my roughly 60/40 AA and get it down to .19.

Trouble with that is, based on published returns for the specific funds involved, last years performance would have been .5% lower. I recognize that past performance is no guarantee for the future but not sure what else to use.

Running my situation through various scenarios with expense ratio as the only variable in Firecalc each .1% seems to have a 1-1.5% variance in survivability. In my case, not a make it or break it factor. I think I’ve reached the point of diminishing returns for the amount of brain cells and time I’ve used up thinking about this.

So, my question for the community is, what is a ‘reasonable’ expense ratio? For anyone that uses outside help, exclude that fee. For people that roll their own portfolio with no fund managers, count your trading fees as the expense ratio.

Thanks in advance.

 

[SecondCor521]

My weighted average is 0.02%. But that is because I include in my weighted average a negative expense ratio on my cash, because it's earning 1.45%. That may not be a fair way to look at it.

My money is all in VTSAX and VBTLX, which I are 4 and 5 basis points, respectively. I don't trade in general, but when I do, it's free, so I have zero trading fees. I use no outside investment help other than the free consultation at Vanguard.

 

[mrfeh]

So, my question for the community is, what is a ‘reasonable’ expense ratio? For anyone that uses outside help, exclude that fee. For people that roll their own portfolio with no fund managers, count your trading fees as the expense ratio.

Thanks in advance.

Ours is .17, and as a boglehead, I consider that on the high side. One of the reasons it's at that level is my 401K plan; sometimes you just don't have cheap options available.

After I quit my job (I'm a part timer right now), and roll that 401K over to Vanguard or Fidelity, I should be able to get the ratio under .10, which is where I think it should be.

PS - don't look at one year's returns when determining if a high expense ratio is "worth it". Especially a year like last year.

 

[DEC-1982]

Our cost is at 0.07% but I think anything below 0.25% is good.

 

[pb4uski]

My weighted average is 0.02%. But that is because I include in my weighted average a negative expense ratio on my cash, because it's earning 1.45%. That may not be a fair way to look at it. ....

That is definitely NOT the way to look at it. For my online cash I would use 0.00% ER, though in reality it is an unknown amount embedded in the 1.45%.

Same with my 3% PenFed CDs... ER is 0.00% but is an unknown embedded in the 3%.

 

[exnavynuke]

Unless there are mitigating factors (such as 401k funds that you can't choose which don't have low ERs), I'd say having an overall ER at or above 0.1% would be excessive and unnecessary.

 

[REWahoo]

...I think anything below 0.25% is good.

+1

Of course lower is always better, provided you are invested the way you want to be.

 

[GalaxyBoy]

I would venture to guess that FIREcalc used 0.18% as the default may be because that was the ER of the Vanguard 500 Index Fund (Investor Shares) back in the day, and it was considered quite good at the time. As others mentioned, you can do much better these days.

 

[USGrant1962]

My weighted average is 0.02%. But that is because I include in my weighted average a negative expense ratio on my cash, because it's earning 1.45%. That may not be a fair way to look at it.

That is definitely NOT the way to look at it. For my online cash I would use 0.00% ER, though in reality it is an unknown amount embedded in the 1.45%.

Negative expense ratio is an interesting way to look at it. I looked up the overnight rate at https://www.treasurydirect.gov/GA-FI/FedInvest/selectOvernightRateDate.htm and it is 1.37% today, so arguably you are at a -0.08% on your cash.

But that is only if your cash is truly in overnight funds (a bank savings or checking account). For example, Vanguard Money Market Prime shows an ER of 0.16% with a current yield of 1.50% and an average maturity of 47 days.

 

[Cobra9777]

Our weighted average ER is 0.12%. About half the portfolio is VTI and AGG at 0.04% and 0.05% respectively. Another 30% is right around 0.12%, like VNQ (REIT) and several international ETFs. What drives it up are HYG (0.49%) and an old legacy ETF in the taxable account with huge embedded CGs, and an ER of 0.38%. I include our small rental property and cash at 0%. If I exclude those, the weighted average is 0.13%.

I trade maybe 4 or 5 times per year and much of that is free (iShares ETFs at Fidelity). Vanguard ETFs cost $4.95 to trade at Fidelity, which is completely inconsequential in the ER calculation. No advisor or any other fees.

 

[bloom2708]

60/40, .07% all up.

Mostly Vanguard and my 401k at Fidelity.

 

[Ready]

According to my Vanguard Portfolio Watch view I'm at .08 overall. I have one actively managed fund in a taxable account which I've had for decades and I don't want to sell it and incur capital gains just to move the money to an index fund. Otherwise it would probably be a bit lower.

The international index funds all seem to be north of .10, but since most of us only hold a minority share of those, it should be easy enough to keep the overall ratio below .10 if you're a true indexer.

Vanguard does not include any cash holdings in their calculations.

 

[braumeister]

So, my question for the community is, what is a ‘reasonable’ expense ratio?

Hard to say if there is an answer to that. "Reasonable" would depend on how you see it. For example, someone with an FA charging 1.5% of AUM might think that's very reasonable because the FA produces a great total return. Others might think that's not reasonable at all.

I think anything below 0.25% is good.

I would agree with that. Personally, my overall is 0.08% and I'm very happy with that. A couple of years ago it was well over half a percent and I've been whittling it down steadily.

 

[audreyh1]

Our cost is at 0.07% but I think anything below 0.25% is good.

Agree. I wouldn’t sweat it if ER is under 0.25%

 

[SecondCor521]

Negative expense ratio is an interesting way to look at it. I looked up the overnight rate at https://www.treasurydirect.gov/GA-FI/FedInvest/selectOvernightRateDate.htm and it is 1.37% today, so arguably you are at a -0.08% on your cash.

But that is only if your cash is truly in overnight funds (a bank savings or checking account). For example, Vanguard Money Market Prime shows an ER of 0.16% with a current yield of 1.50% and an average maturity of 47 days.

Most of my cash is in a plain vanilla Alliant Credit Union savings account. Last I checked it was paying 1.45%; they've been bumping the rate up a little bit recently like everywhere else. It's not the best, but I don't have that much and it's not worth the hassle for me to move.

@pb4uski, you're right, I was double counting the 1.45% - first, as a negative expense ratio in my weighting, and second, as the return on my cash when I ran simulations. I removed the negative expense ratio weighting part, so now my portfolio ER is 0.05%.

(Since I am at a 2.9% gross withdrawal rate and probably about a 1.5% net withdrawal rate, I'm not going to go back to work just yet to cover those additional 3 basis points.)

 

[ERD50]

Agree. I wouldn’t sweat it if ER is under 0.25%

Maybe not worth sweating, but I see VTI is 0.04% and BND is 0.05%. So say 0.045% for a 50-50 AA.

The difference between 0.25% and 0.045% on a $1M portfolio is $2,050 each year. Considering how easy it is to choose the low ER funds, it's an easy $2,050 per year. I think most of us routinely put in a lot more effort than that to save far less. And this savings keeps repeating itself, and grows as your portfolio grows.

Unless you have taxable gains to worry about, it seems like a no-sweat action.

Hmm, I hold some BRK in my taxable account, to limit divs for ROTH conversions. I guess it doesn't have an "ER" as such?

-ERD50

 

[NW-Bound]

Y'all make me look.

Currently, only 12% of my stash is in MF, and the rest is self-managed in individual stocks. If I take the transaction costs reported by Quicken, and divide that into the self-managed portion, I get 0.07%.

That's pretty low for being an active investor. I pay $3 per option trade. The stock trades are free, unless they are by option assignment then it's $7.

PS. I also have quite a bit of ETF in that self-managed portion. They of course have expenses compared to individual stocks, so my total ER is definitely higher than that 0.07%.

 

[big-papa]

I'm at 0.17 now. Why isn't it lower?

- Most of my funds run from 0.05 to 0.14%
- But I have about 10% of my portfolio in FLPSX (e/r at 0.68) in a taxable account. Sold it all a couple of years ago in my rollover IRA, but I don't want to incur a capital gain hit in my taxable account since I'm not yet retired, so there it remains. I do redirect dividends/cap gains elsewhere, though
- I own IJJ which is e/r of 0.25%
- I own SCZ which is 0.4%

 

[audreyh1]

Maybe not worth sweating, but I see VTI is 0.04% and BND is 0.05%. So say 0.045% for a 50-50 AA.

The difference between 0.25% and 0.045% on a $1M portfolio is $2,050 each year. Considering how easy it is to choose the low ER funds, it's an easy $2,050 per year. I think most of us routinely put in a lot more effort than that to save far less. And this savings keeps repeating itself, and grows as your portfolio grows.

Unless you have taxable gains to worry about, it seems like a no-sweat action.

Hmm, I hold some BRK in my taxable account, to limit divs for ROTH conversions. I guess it doesn't have an "ER" as such?

-ERD50

Well sure, lots of folks here jump through multiple hoops to save $2000 a year, and it’s easy to get a portiofolio ER down below 0.05% these days.

But darn those pesky capital gains taxes!

 

[big-papa]

Well sure, lots of folks here jump through multiple hoops to save $2000 a year, and it’s easy to get a portiofolio ER down below 0.05% these days.

But darn those pesky capital gains taxes!

One way I like to think about it is to put the dollar amount in terms of how many weeks of expenses is the e/r equivalent to this year?

 

[RunningBum]

I lowered my expense ratio by selling off most of my Vanguard Primecap (0.32% ER for admiral shares) late last year, but I have no regrets for holding the higher expense fund for many years. It soundly beat the Total Stock and Total Intl Stock index by full % points (9% and 5% over the last year, 6% and 3% over the last 3 years, 4% and 12% over the last 5), so a lower expense ratio is no guarantee. I know that most managed funds do not consistently beat their comparable indices, and one of the reason I sold is that even though PC historically has, it may not in the future. Just pointing out that saving ER expenses is only part of the picture, and not everyone chooses to be an index investor. And that's probably a good thing for those of us that are.

 

[NW-Bound]

I just saw in my inbox an email from Schwab announcing three index funds with expense ratio of 0.04%, compared to Vanguard's similar funds with 0.18%.

 

[REWahoo]

What funds?

 

[audreyh1]

One way I like to think about it is to put the dollar amount in terms of how many weeks of expenses is the e/r equivalent to this year?

Now why would I do that? LOL! I guess you haven’t seen my latest entries on the “Blow that Dough 2018”

Sorry - I’m being flippant. Can’t help it.

The OP is getting good advice here.

I gradually reduce my ER as I can opportunistically and with an eye to keeping the tax impact to a minimum. Small gradual steps. It will probably take the rest of my life. Things are going well regardless - knock on wood!

 

[NW-Bound]

What funds?

For you, I have just pulled up that email again.

Large-Cap Growth: SWLGX vs VIGRX
Large-Cap Value: SWLVX vs VIVAX
Mid-Cap: SWMCX vs VIMSX

Email said "no minimum investment". I do not know if there's any restriction for non-Schwab customers.