How much weight do you give to expense ratios

[Phroig]

Even in active investing, funds from the low-expense ratio families - Wellington/Primecap at Vanguard, Fidelity, Capital Group, TRP - are usually great investments for the long term. Some funds with very high expense ratios do terrific, sometimes for long periods of time, but the trick is to know which ones to get into and when to leave.

 

[Koolau]

Even in active investing, funds from the low-expense ratio families - Wellington/Primecap at Vanguard, Fidelity, Capital Group, TRP - are usually great investments for the long term. Some funds with very high expense ratios do terrific, sometimes for long periods of time, but the trick is to know which ones to get into and when to leave.

That's always the issue: When to get in and when to get out. I'd rather just get in and more or less forget about it until I need a cash-out for some reason. IOW I'm a couch potato investor at heart. If I have to w*rk at (and worry about) an investment, I might as well just w*rk! Nope. Low fund expenses, index funds for the most part, let it ride (up and down.) Full disclosure I have one stock not in a fund (old Megacorp) and I do have a small investment in PMs to "smooth the ride" and provide a bit of insurance. I check my results rarely - I try to do a full "audit" once a year and that's about it. I use my RMDs to rebalance.


What could be lazier than that?

 

[RoBo]

Curious about how people see this. It seems it's rather hyped IMO - while I get all things being equal, choose lesser expenses, I'm a bottom line kind of guy, so if I think a fund is better than another, I'm not going to get wrapped up too much in one having a bigger expense ratio than another

Fund expenses are one and only thing you can predict with certainty or control in advance. You cannot control the stock market and you cannot control next year's success of a fund that was successful this year.
Those expenses may seem slight, but over the long term they are huge in terms of performance.

 

[engineernerd]

Curious about how people see this. It seems it's rather hyped IMO - while I get all things being equal, choose lesser expenses, I'm a bottom line kind of guy, so if I think a fund is better than another, I'm not going to get wrapped up too much in one having a bigger expense ratio than another.

Your statement of the position is incomplete. The whole position of John Bogle and his followers is that actively managed funds do not beat the market over the long run. Some may get lucky for a while, but they all show their feet of clay eventually. Therefore it makes sense for the patient, long-term investor to choose broadly-based index funds rather than actively-managed funds.

Once you accept that position, it becomes obvious that the best fund is the one with the lowest expense ratio.

John Bogle did advocate that position before index funds took over the market to the extent they have now. If index funds dominate the market, that subverts any pretense of market discipline, where astute investors are supposed to uncover truths about individual companies that should affect their market value. I personally think that lax regulations and lax enforcement of disclosures are subverting market discipline anyway, so index-fund dominance doesn't really matter as much as you would think, but that's just my opinion.

 

[Al18]

I own some index funds and actively managed funds. Some actively managed definitely beat the SP500 fund. Fidelity Select Semiconductor fund over the past 10 years has performed 3x better FSELX - Fidelity ® Select Semiconductors Portfolio | Fidelity Investments

 

[engineernerd]

I own some index funds and actively managed funds. Some actively managed definitely beat the SP500 fund. Fidelity Select Semiconductor fund over the past 10 years has performed 3x better FSELX - Fidelity ® Select Semiconductors Portfolio | Fidelity Investments

Even 10 years is not that long in the context of saving for retirement. If you have been invested in that fund for those 10 years, good for you. If you just put your money in recently, based on that history, you may find yourself disappointed. Any given industry will have its ups and downs, and investing after a long "up" period often turns out to be a mistake.

 

[Al18]

Semiconductors have been driving growth since the 80’s. I wouldn’t bet against it.

 

[Koolau]

I own some index funds and actively managed funds. Some actively managed definitely beat the SP500 fund. Fidelity Select Semiconductor fund over the past 10 years has performed 3x better FSELX - Fidelity ® Select Semiconductors Portfolio | Fidelity Investments

Check back in 10 years and let us know how it's doing. You can flip a coin and get 10 heads. I just wouldn't count on doing that twice in a row.

Look at one of the sector results matrix charts. Today's hot sector may be next year's loser.

https://www.spglobal.com/spdji/en/documents/performance-reports/spdji-sector-performance-matrix.pdf

 

[Al18]

I’ve already won old man - NVDA holder for decades

 

[Koolau]

I’ve already won old man - NVDA holder for decades

Yep, so far, that's a winner. Hope it keeps going up for you.

 

[PointBreeze]

Years ago my DP insisted on hiring a CFP (that some of our wealthier friends use) to manage her personal portfolio. He put her in a plethora of funds, most of which had expense ratios over 1%.

I calculated the actual annual expense per fund, totaled them, then did the same for my portfolio. In total, she was paying ~ 10 times as much per year as I was, even though her portfolio included non-fee investments and mine didn’t, and my portfolio was 50% larger than hers. And that didn’t include the CFPs AUM fee, of course.

Then I compared the total return of both of our portfolios, and mine was significantly higher.

Then I used the portfolio analyzer spreadsheet to show her what her return would have been with set of low cost funds.

Now I manage her portfolio

 

[38Chevy454]

As simplification, essentially the extra expense ratio fees are an example of nrgative compounding over time. Or put another way, the savings of low expense ratio compounds and shows benefit over longer time periods.

 

[Qs Laptop]

Even 10 years is not that long in the context of saving for retirement. If you have been invested in that fund for those 10 years, good for you. If you just put your money in recently, based on that history, you may find yourself disappointed. Any given industry will have its ups and downs, and investing after a long "up" period often turns out to be a mistake.

I put my money in this same fund in February 2018. I'm getting an annualized return of a tad over 60%. Oh, darn...that return has been "dragged down" by an expense ratio of 0.65%. That's unacceptable.

When do you anticipate the demand for semiconductors and semiconductor equipment makers will lessen?

I don't see it happening in my lifetime, or my children's lifetimes.

 

[ERD50]

... When do you anticipate the demand for semiconductors and semiconductor equipment makers will lessen?

I don't see it happening in my lifetime, or my children's lifetimes.

Of course not. But that doesn't mean that the sector can continue to outperform the market. Stock prices are a very different thing than the product itself. For one, stock prices are based (to some/large degree) on expectations. If expectations are high, the price is driven higher. Even if there is lots of growth and good performance, if those good results aren't as great as the expectations, the stock prices can fall.

You have obviously done well, congrats. But I don't think that supports your thinking about the future. It doesn't mean you are wrong either!

 

[OldShooter]

When do you anticipate the demand for semiconductors and semiconductor equipment makers will lessen?

I don't see it happening in my lifetime, or my children's lifetimes.

That answers only half of an investment question. A good company is not necessarily a good investment.

Here is investing patriarch Ben Graham (in "The Intelligent Investor") on the problem: " ... we hope to implant in the reader a tendency to measure or quantify. For 99 issues out of 100 we could say that at some price they are cheap enough to buy and at some other price they would be so dear that they should be sold. The habit of relating what is paid to what is being offered is an invaluable trait in investment. In an article in a women’s magazine many years ago we advised the readers to buy their stocks as they bought their groceries, not as they bought their perfume. The really dreadful losses of the past few years (and on many similar occasions before) were realized in those common-stock issues where the buyer forgot to ask 'How much?' "

As then end of a bubble is approached, it seems like more and more traders are operating on the greater fool theory, totally independent of the intrinsic value of the assets. That is fine as long as there is one more fool to sell to, but it is not investing. Greater fool theory - Wikipedia

 

[Al18]

I use FSELX to diversify away from the SP500. It’s currently not a large holding.

 

[Koolau]

As I think about it right now, I'm not (myself) buying ANYTHING. Some things are being bought in my name within my index funds, but that's it. Does that STILL make me the "Greater Fool"?

 

[Montecfo]

As then end of a bubble is approached, it seems like more and more traders are operating on the greater fool theory, totally independent of the intrinsic value of the assets. That is fine as long as there is one more fool to sell to, but it is not investing. Greater fool theory - Wikipedia

Greater fool theory? Bubble?

I thought the market was efficient...

(Just having some fun with ya)

 

[Qs Laptop]

That phrase, "the intrinsic value of the asset" is interesting. There are many ways to arrive at this value. I read "The Intelligent Investor" years ago and if I remember correctly, he's basically a value investor. (And I think the book was written over 70 years ago.)

I'm not a value investor, I'm a growth investor. As such, I'm certain my definition of "intrinsic value of the asset" is going to be different than Mr. Graham's.

 

[OldShooter]

That phrase, "the intrinsic value of the asset" is interesting. There are many ways to arrive at this value. I read "The Intelligent Investor" years ago and if I remember correctly, he's basically a value investor. (And I think the book was written over 70 years ago.)

I'm not a value investor, I'm a growth investor. As such, I'm certain my definition of "intrinsic value of the asset" is going to be different than Mr. Graham's.

The point is still the same. It is possible, even common, for good companies to be overpriced and hence not good investments. That is basically the description of a bubble.

 

[Koolau]

The point is still the same. It is possible, even common, for good companies to be overpriced and hence not good investments. That is basically the description of a bubble.

The problem with bubbles (and whatever we call the opposite of bubbles) is that they're only obvious in the rear-view mirror. Or, they are a bubble that will make you miss out on a lot of growth if you agree that they're a bubble and sell too early.

 

[OldShooter]

The problem with bubbles (and whatever we call the opposite of bubbles) is that they're only obvious in the rear-view mirror. Or, they are a bubble that will make you miss out on a lot of growth if you agree that they're a bubble and sell too early.

Exactly. That's why market timing doesn't work and buy and hold does work.

 

[Qs Laptop]

The point is still the same. It is possible, even common, for good companies to be overpriced and hence not good investments. That is basically the description of a bubble.

The point is "overpriced" is a subjective term. It means one thing to a value investor and quite another thing to a growth investor.

 

[Koolau]

Exactly. That's why market timing doesn't work and buy and hold does work.

Hear, hear!

 

[jim584672]

SPY expense ratio 0.09% 5 year total return - 113.51%
VOO expense ratio 0.03% 5 year total return - 114.13%
SPLG expense ratio 0.02% 5 year total return - 114.51%

Source: Stockcharts.com 5 year Performance chart.