17

You absolutely should consider expenses. Why do they matter when the "sticker price" already includes them? Because you can be much more certain about what the expense ratio will be in the future than you can about what the fund performance will be in the future. The "sticker price" mixes generalized economic growth (i.e., gains you could have gotten from ...


15

Because funds of different share classes are there to cater different account sizes. The actual equivalent of VTI is Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) if account size is > US$10,000. Now you may ask why VTI is 0.03% while VTSAX 0.04%. That is because Vanguard of VTSAX provides service, while the service of VTI is provided by ...


13

YES.. Management fees cut directly into your profits. A fund which achieves 8% growth but costs 1% to maintain delivers only 7% to you. Compounded over years, even a relatively small difference can add up to a significant amount of money. This is one of the advantages index funds have. They may not be as "sophisticated" as human-managed funds, but their ...


13

Past performance accounts for the expense ratio, but is (proverbially) not indicative of future results. In particular, going by past performance and choosing a fund that has recently beaten the market will, according to the efficient market hypothesis (EMH), give no greater chance of beating the market in the future. In fact, it may incur excessive risk. ...


12

I hope a wall of text with citations qualifies as "relatively easy." Many of these studies are worth quoting at length. Long story short, a great deal of research has found that actively-managed funds underperform market indexes and passively-managed funds because of their high turnover and higher fees, among other factors. Literature Longer answer:...


12

Suppose a fund has an expense ratio of 0.055%, as I understand it that means $55 per $1000. If the expense ratio is stated as 0.055% that is actually around 5 hundredths of 1% of the total amount invested. 1000*0.055/100 = $0.55 per thousand. Where do the expenses come from? Is every purchase of the fund reduced by 0.055%? So if a fund has a cost of $100/...


10

Over the past five years, QFVOX has returned 13.67%, compared to the index fund SPY that has returned 50.39%. SEVAX has lost 23.96%. AKREX has returned 81.82%. In two of your three examples, you would have done much better in an index fund with a very low expense ratio as suggested. While one can never, as you see, make a generalization, in almost every ...


9

Should you care? From Vanguard: The long-term impact of investment costs on portfolio balances Assuming a starting balance of $100,000 and a yearly return of 6%, which is reinvested Check out this chart, reflecting the impact of relatively small expense ratios on your 30 year return: All else being equal you should very much care about expense ratios. ...


9

In almost every circumstance high expense ratios are a bad idea. I would say every circumstance, but I don't want backlash from anyone. There are many other investment companies out there that offer mutual funds for FAR less than 1.5% ratio. I couldn't even imagine paying a 1% expense ratio for a mutual fund. Vanguard offers mutual funds that are ...


9

The answer depends on your spending habits and priorities and many other factors. However, just on the basis of the numbers you give, the simple answer would be no. The difference in cost of living between Madison and San Francisco is almost certainly more than the roughly 25% increase in your salary. This is assuming you actually mean San Francisco and ...


8

This article has a nice breakdown of the fees people usually face when investing in their 401(k). Not all plans charge all of these fees, but I'll try to summarize the ones they list that occur in general. expense ratios - this measures the fund's annual total operating expenses and includes some administrative fees, like 12b-1 fees, operating costs, etc. ...


8

The 10% refers to the change in return, not the the change in principal. Case 1: you invest $1000 with a 0% TER and 10% return. That means your return is $100. Your balance would be $1100. Case 2: you invest $1000 with a 1% TER and 10% return, where the fee is subtracted immediately. After the fee you are left with $990, and your gross returns will be $99. ...


8

Adding onto base64's excellent answer, an ETF also avoids some of the liquidity costs incurred by open end funds. Since only authorized participants may trade shares directly with a fund, and only in large blocks, the fund manager does not need to worry about buying/selling shares to service individual account holders needs. Imagine if you needed to cash out ...


8

Yes. While the expense ratio is deducted from the NAV, it is still relevant. Imagine you have two index funds tracking the same index. One with 0.1% and the other with 1% TER. Obviously the cheaper fund will outperform the expensive one. Now we add a layer of complexity and pick active funds. The expected return of a randomly chosen fund before costs is the ...


7

Expenses matter. At the back end, retirement, the most often quoted withdrawal rate is 4%. How would it feel to be paying 1/4 of each years' income to fees, separate from the taxes due, separate from whether the market is up or down? Kudos to you for learning this lesson so early. Your plan is great, and while I often say 'don't let the tax tail wag the ...


7

That expense ratio on the bank fund is criminally high. Use the Vanguard one, they have really low expenses.


6

In many cases the expenses are not pulled out on a specific day, so this wouldn't work. On the other hand some funds do charge an annual or quarterly fee if your investment in the fund is larger than the minimum but lower than a "small balance" value. Many funds will reduce or eliminate this fee if you signup for electronic forms or other electronic ...


5

It seems at most a cosmetic difference - nothing keeps you from adding the 9$ cash to the fund the same day the fees are deducted from the shares.


5

The NAV of an ETF changes because of the share price of its components. It's actual price increases or decreases because buying or selling of ETF shares in the marketplace. If a stock is removed from the index that the ETF tracks, the portfolio composition changes. The ETF rebalances and realigns the weightings of its assets. While this may incur ...


5

Answer from Phillip is correct. I want to add that there are total 807 million shares outstanding fr EEM and turn over is 16% or Average Volume is 66 millions shares per day. So each EEM is changing hand every 12 days on an average. And same is not true for VWO . For VWO it is 1.51B/14.15M ~=100+ days.


4

Both the expense ratio of the mutual funds and the administrative fees charged by your 401k plan administrator are a drain on your investment. However, the expense ratio is not visible in the transactions reported by the 401k administrator (or for that matter on the mutual fund's site either (for non-401k sites)). The share price of a mutual fund is net of ...


4

See my comment for some discussion of why one might choose an identical fund over an ETF. As to why someone would choose the higher cost fund in this instance ... The Admiral Shares version of the fund (VFIAX) has the same expense ratio as the ETF but has a minimum investment of $10K. Some investors may want to eventually own the Admiral Shares fund but ...


4

The expense ratio is 0.17% so doesnt that mean that for every 10K I keep in the money market fund I lose $17/year? Not really. The expense ratio is taken before distributions are paid which applies to all mutual funds. Should I care about this? In this case not really. If it was a taxable account, then other options may be more tax-efficient that is ...


4

Returns reported by mutual funds to shareholders, google, etc. are computed after all the funds' costs, including The expense ratio The 12b-1 fee, if any The transactions costs of the fund, which are not publicly disclosed but which you do have to pay Therefore the returns you see on google finance are the returns you would actually have gotten.


4

Simply put, that's not allowed. Outside a retirement fund, they simply do not provide a mechanism to pay that expense ratio separately. Ergo, any effort to pay that expense ratio would be classified as a new/additional purchase of the fund. You now must deal with any fund rules about activity or minimum purchase size creating a separate purchase with ...


4

The expense ratio an ETF charges is simply deducted from the assets it holds. This reduces the net asset value which, by market forces and the redemption mechanism, drives the market value of ETF shares down. The key is the expenses are paid daily and therefore in such small increments it's hard to notice. However, over a long term, you will see that an ETF ...


4

On a $100 investment, a 10% return is $10. A 1% fee is $100 * .01 = $1 $1 of the $10 is 10% There are times we talk about a 4% safe withdrawal rate in retirement. And people ask about paying a pro 1% to manage their money. To me, this means 3% for you, 1% for the planner. Or 25% of your withdrawals go to the planner you hired.


4

To paraphrase the late great John Bogle, there are only two "free lunches" or "pure wins" in investing: One is diversification and the other is minimizing investment costs (fees). You really do come out ahead by choosing a lower-cost mutual fund or ETF. So why is this advantage not arbitraged away by the market, as your trading intuition suggests? Free ...


4

An example explanation ... https://www.morningstar.com/invglossary/expense_ratio.aspx I believe they: the fund has "one big bank account" with all the/any cash and obviously "one big holding" of the various stocks they calculate/decide on the current annual expenses. for example 5 staff members, 13 desk rentals, electricity bill, total ...


4

Lowering the expense ratio, according to my understanding, only matters when we have another fund with a similar distribution of holdings, and has a lower expense ratio which yields a higher return. That's a big "only", since investment companies usually offer similar funds.


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