Author Topic: Does the Actual Price of a Fund Matter at All?  (Read 2929 times)

D Bopp

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Does the Actual Price of a Fund Matter at All?
« on: February 01, 2015, 01:56:30 PM »
This is another question I think about that may sound stupid, but I guess there's no better place to get an answer than right here!

Does the actual fund price have any affect on anything (besides comparing it to its own performance)? Would there ever be less room for growth because of the share price? Or is the price irrelevant?

I just mean looking strictly at the price. Like comparing it to another fund that is equally stable, but its fund price is in the 30s or 40s. Would investors look at the one with the higher price and think it may not go much higher, where the lower priced one could get to the 100s?

Part of my 401K is invested in Vanguard fund VFIAX. The current fund price is $184.19. The reason I'm asking is because I don't usually see fund prices above this. Most I see are in the $20-75 range.  Do funds have splits just like regular stocks from time to time?  I know individual stock prices can get in to the mid hundreds, and rare ones like Berkshire Hathaway are in the hundreds of thousands due to not splitting. I don't think I've ever seen a fund price higher than the VFIAX.

May sound like a silly question, but it's something I've thought about.
« Last Edit: February 01, 2015, 02:19:02 PM by D Bopp »

seattlecyclone

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Re: Does the Actual Price of a Fund Matter at All?
« Reply #1 on: February 01, 2015, 02:45:42 PM »
If you can buy fractional shares, the per-share price is almost completely irrelevant. If you have to buy full shares and leave any remainder in cash, it's more efficient to have cheaper shares.

Dodge

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Re: Does the Actual Price of a Fund Matter at All?
« Reply #2 on: February 01, 2015, 02:50:49 PM »
As SeattleCyclone said, for funds it doesn't matter. For ETFs it matters since you can't typically buy ETFs in fractional shares.

TheMoneyBadger

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Re: Does the Actual Price of a Fund Matter at All?
« Reply #3 on: February 01, 2015, 02:54:40 PM »
Technically, no.  Changes to the fund price are a function of how the prices of the constituent securities that are part of the fund change.  The price of the fund is actually the NAV (Net Asset Value) which is the total value of all the securities in the fund divided by the number of fund shares.  The NAV is basically irrelevant other than for psychological effect.  Mutual funds may split shares at times to maintain NAVs that are within the ranges common to their category.

humblefi

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Re: Does the Actual Price of a Fund Matter at All?
« Reply #4 on: February 01, 2015, 06:48:08 PM »
Quote
Does the actual fund price have any affect on anything (besides comparing it to its own performance)? Would there ever be less room for growth because of the share price? Or is the price irrelevant?

I will take a slightly different angle to the response. I will argue that it all depends on when you want the money back.

Lets take an example.

Year 1: NAV $10    bought $1000 worth of stocks         no of stocks = 100        total stocks = 100
Year 3: NAV $5      bought $1000 worth of stocks         no of stocks = 200        total stocks = 300
Year 6: NAV $10    bought $1000 worth of stocks         no of stocks = 100        total stocks = 400                 

+ If you had held the fund through all 6 years and then sold the fund, you will get 400 * $10 = $4000  (profit)
+ If you had held the fund after 2 years and then sold the fund, you will get 100 * $5 = $500 (loss)

The NAV does not matter when you hold a mutual fund through ups and downs and Dollar Cost Average the stocks to a value that gets you a profit when you sell.
But, if you sell the fund in a downturn, then you will take a loss.

Right now, we have had 6 years of stock market upside...so, it is logical to expect a downturn at some point in the near future....lets say that the downturn lasts for 3 years. If you want your money back in 1 year, the entry price will matter.

Hope this helps.

innerscorecard

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Re: Does the Actual Price of a Fund Matter at All?
« Reply #5 on: February 01, 2015, 07:27:21 PM »
The total NAV (not per-share NAV) of a mutual fund or ETF is relevant in that it must be high enough for the fund to be viable. Funds with not enough asset will inevitably shut down.

TheMoneyBadger

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Re: Does the Actual Price of a Fund Matter at All?
« Reply #6 on: February 01, 2015, 08:08:50 PM »
The total NAV (not per-share NAV) of a mutual fund or ETF is relevant in that it must be high enough for the fund to be viable. Funds with not enough asset will inevitably shut down.

True, the total NAV matters and I should have said NAV per share is irrelevant.  The context of the question was the price of a share of the fund - which makes NAV per share (aka price) the point here.  NAV per share (price) can change dramatically with stock splits or reverse splits without any impact to the value to the share holder.

OP: Long story short - don't worry about the price of a share when you buy it.  Obviously, if you sell that share for less than you bought it, you'll take a loss (unless there are splits involved). If you're going to stress about something, stress about making sure the expense ratios of the funds you choose are low.

Terrestrial

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Re: Does the Actual Price of a Fund Matter at All?
« Reply #7 on: February 02, 2015, 07:51:13 AM »
I will take a slightly different angle to the response. I will argue that it all depends on when you want the money back.

Lets take an example.

Year 1: NAV $10    bought $1000 worth of stocks         no of stocks = 100        total stocks = 100
Year 3: NAV $5      bought $1000 worth of stocks         no of stocks = 200        total stocks = 300
Year 6: NAV $10    bought $1000 worth of stocks         no of stocks = 100        total stocks = 400                 

+ If you had held the fund through all 6 years and then sold the fund, you will get 400 * $10 = $4000  (profit)
+ If you had held the fund after 2 years and then sold the fund, you will get 100 * $5 = $500 (loss)

The NAV does not matter when you hold a mutual fund through ups and downs and Dollar Cost Average the stocks to a value that gets you a profit when you sell.
But, if you sell the fund in a downturn, then you will take a loss.

This is technically 'true' but not relevant to the question he asked (as I understood it).  This example would have produced the same result if you use a per share price change of $10/$5 or $1000/$500.  It's not a surprise that if you sell when the share price is down you lose money....the per share price is irrelevant it would produce the same result for any equivalent % change.   

OP wants to know if a mutual fund at $20 per share is inherently any better/worse than $200 per share.  The answer is not in a financial value sense, they are both just representations of a fractional share of the NAV of the fund...dependant on how much assets the fund holds and how many shares are outstanding.   As other posters have brought up there are some minor points about why one might be better than the other for more intangible reasons...liquidity, if you have to buy whole shares or can buy fractional, if you need whole lots to sell covered calls against it (EFT).

Right now, we have had 6 years of stock market upside...so, it is logical to expect a downturn at some point in the near future....

Why?

D Bopp

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Re: Does the Actual Price of a Fund Matter at All?
« Reply #8 on: February 02, 2015, 01:22:49 PM »

[/quote]

This is technically 'true' but not relevant to the question he asked (as I understood it).  This example would have produced the same result if you use a per share price change of $10/$5 or $1000/$500.  It's not a surprise that if you sell when the share price is down you lose money....the per share price is irrelevant it would produce the same result for any equivalent % change.   

OP wants to know if a mutual fund at $20 per share is inherently any better/worse than $200 per share.  The answer is not in a financial value sense, they are both just representations of a fractional share of the NAV of the fund...dependant on how much assets the fund holds and how many shares are outstanding.   As other posters have brought up there are some minor points about why one might be better than the other for more intangible reasons...liquidity, if you have to buy whole shares or can buy fractional, if you need whole lots to sell covered calls against it (EFT).


[/quote]

Yes, this is what I mean. And I was curious if funds ever split to look more appealing to investors kind of like the way individual stocks do.