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You can pick any time frame you like. I dont look at oppertunity costs because those can be just as vague and uncertain as having that managed fund beat its index by more than the fees for most of that time frame.
there is no question the lower the fees the better but there is so much more to it than just fees in a fund. i track both a hypothetical index of funds i was thinking of eventually going with . my managed portfolio dollar wise has been ahead for the last decade or so since i started tracking.
i always thought about going index but never did. in retrospect im glad as im further ahead .
Last edited by mathjak107; 04-16-2012 at 10:11 AM..
Opportunity costs are not vague or uncertain at all. That 1.5% (or whatever the ER) will cost exactly that much over the life of the investment given the rate of return. You have to consider them, otherwise you are not getting an accurate picture of your results.
With regards to an overall investment strategy, to index or not to index, that is the question. Given the reality that approximately 80% of managed funds fail to beat their respective indices in any given year, I think the odds are clear.
Good for you on being ahead of the game, but I wonder what your balance sheet would look like had you factored in the accumulated opportunity costs of the management fees. Also, would that hold up over the total life of the investment rather than the past ten years you've kept track?
But it seems you are satisfied, and at the end of the day, that is the important thing.
Quote:
Originally Posted by mathjak107
You can pick any time frame you like. I dont look at oppertunity costs because those can be just as vague and uncertain as having that managed fund beat its index by more than the fees for most of that time frame.
there is no question the lower the fees the better but there is so much more to it than just fees in a fund. i track both a hypothetical index of funds i would to have liked to use . my managed portfolio dollar wise has been ahead for the last decade or so since i started tracking.
i always thought about going index but never did. in retrospect im glad as im further ahead .
I cant say what the opportunity costs of the fees would be. Even with the fees i beat my indexing model so whats the difference .
there is no opportunity cost because the fees are the fees and were the price of admission for that performance.
i only started tracking the last decade or so with my indexing model. i can tell you i beat the gains of the s&p the last 25 years with my managed group of funds but there were very few index funds or etf's around prior ..
These fees I've been talking about ARE NOT a small price to pay. They will mean potentially hundreds of thousands of dollars in losses for you. Read this interview with Jack Bogle. Scroll to about halfway down where he talks about 401k fees:
These fees I've been talking about ARE NOT a small price to pay. They will mean potentially hundreds of thousands of dollars in losses for you. Read this interview with Jack Bogle. Scroll to about halfway down where he talks about 401k fees:
So if the fees are as high as you think, what would you do in my situation?
I have 2 options, 401k or roth 401k. Anything else and my company will not match.
1. Do the Roth in your 401k plan's fund that has the lowest expense ratio, but only up to the amount that gets you the company match.
2. Start an IRA at Vanguard. Max it out each year ($5k).
Find out what the fees are.
Quote:
Originally Posted by Mr_Geek
So if the fees are as high as you think, what would you do in my situation?
I have 2 options, 401k or roth 401k. Anything else and my company will not match.
if you want my opinion ,everyone has to do alot of their own basic homework first.
plunking your money into a bunch of index funds may not be the best way to do things for yourself.. i have seen hodge podges of stuff just thrown together thats just awful portfolio planning regardless if its low cost..
we have folks right in this forum who bought total market index funds , an s&p 500 index fund and a target date fund. i cant come up with a worse match if i tried. the total market fund is 85% or so dominated by the s&p500 so all they did is duplicate what they have and the target date funds actions are being un-done by all the other crap they bought..
like i said all things being equal the lower the cost of the funds the better. but the big if is "all things being equal"
my goal as an investor and also for many other investors is about getting a bigger return back than the risk you take to get it.
my goal has always been not to buy an s&p 500 index fund but to accomplish the same returns with actively managed funds and 10-20% less volatility .
i also want to do it with the least amount of work and the least amount of time spent.
so although i consider myself a successful investor,with strong knowledge of portfolio planning over the last 25 years i cheated.
i use a newsletter that caters to only fidelity funds.
they know ,live and breath fidelity funds and are are pretty decent at putting together model portfolios where the funds are well balanced and play nice together.
like nudging a big ship all i do is check every friday to see if we are swapping any funds to better fit the big picture and gently nudge the portfolio that way..
the swaps are few and they generally will never harm you if they are wrong.
now this is where i like this style.
as an example when the dollar was falling we exchanged into a fund thats weighted towards export and multinational companies. it did very well .
when it looked like the dollar was stabilizing we switched into a more domestically situated fund where the manager was weighted towards things here at home..
we exploited the best times in both funds and exploited the views the managers had in each . neither fund on its own beat the market but by utilizing the best of both the returns beat the markets .
the best thing is i can spend my time doing what i enjoy and i dont have to start planning portfolio strategys in my spare time. i dont worry about what to do in the drops or leave myself to my own emotions.
the slight price of admission for all this is as compared to going totally passive to me is well worth it and before someone undertakes doing this on their own they better have all their knowledge in place and be ready to devote time to planning and learning..
by the way they do have newsletters that use etf funds so you may be able to get the advantages of both but i cant speak for any of them as i have no knowledge about them.
thats why its not just about fees. its about the performance, implementation and risk of your total overall portfolio.
Last edited by mathjak107; 04-16-2012 at 05:38 PM..
When I signed up I chose an "aggressive" plan that allocates your money for you (since I know nothing about this).
These are the "core funds" available:
money market fund, treasury inflation protected sec fund, bond fun, us stock index fund, us large company stock fun, us small-medium stock fund, international stock fund
My money is all in the stocks right now it seems (tiny bit in bonds)
Here is the expense ratios of where my money is: us - .02% large - .29% small-medium - .57% international - .45% bond fund - .22%
Those are good expense ratios. I am a little skeptical about the .02% you gave for the US Stock Market Index. If accurate, that even beats the TSP fee of the Fed Gov which is .025%, and I am unaware of any which even come close to the TSP.
That being the case, you are in too many US funds. If you have the total US, there is no need to also be in the large cap and the medium funds. I would just choose the US stock index fund, since it covers the entire US market. Can't get much more diversified that that.
As far as international exposure, you need to decide the amount of risk you are willing to bear. Anywhere from 25-30% is the usual recommendation. If you are more risk tolerant, do more. Make sure that fund includes emerging markets, however.
With bonds, again, you should decide if you want to include them and at what percentage of your allocations. Many financial experts, including Jack Bogle, recommend a formula based on your age.
You've got some decent choices there and the expense ratios are good. I'd still start an additional IRA at Vanguard if I were you, because you can get even lower expense ratios there.
Quote:
Originally Posted by Mr_Geek
When I signed up I chose an "aggressive" plan that allocates your money for you (since I know nothing about this).
These are the "core funds" available:
money market fund, treasury inflation protected sec fund, bond fun, us stock index fund, us large company stock fun, us small-medium stock fund, international stock fund
My money is all in the stocks right now it seems (tiny bit in bonds)
Here is the expense ratios of where my money is: us - .02% large - .29% small-medium - .57% international - .45% bond fund - .22%
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