Author Topic: Mutual Fund Calculator that Includes Dividends AND Expense Ratio? VSGAX/VGSLX  (Read 4676 times)

Crazydude

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I simply haven't been able to find one. Plug in initial investment, annual contribution, annual % increase, annual dividend %, AND expense ratio...

Specifically I've been trying to compare the two funds below over a 20 year period, in an IRA (annual contribution of $5,500) with $10K starting balance. Without inputting cost, VSGAX came out ahead according to this calculator: http://www.dividendladder.com/tools/dividend-calculator/

Funds:
VSGAX (Low dividends, high growth (for now))
VGSLX (Higher dividends, with also high growth)

skyrefuge

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I think you're looking for a calculator that's more complex than it needs to be. Dividends and the expense ratio are simply components of the total return from a mutual fund; there is no reason to separate them out. So for a forward-looking calculation, you can simply give a calculator one number instead of three: the total return you expect.

A calculator like http://www.moneychimp.com/calculator/compound_interest_calculator.htm will do that calculation for you.

However, since you're really just guessing at what you expect the future total returns to be, any calculation like this will never be particularly useful for comparing two different funds, since the input assumptions you make (which are more likely to be wrong than right!) fully determine the output. If you expect VSGAX to have a higher annual return than VGSLX, then VSGAX will always win, no matter how long your period is or what your contributions are.
« Last Edit: June 08, 2015, 04:43:17 PM by skyrefuge »

Crazydude

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Ok. See I thought that, for example, VGSLX has a 3.64% dividend, that that was separate from the overall ~11% annual yield (since inception). But you're telling me the percentage they give in 1, 5, and 10 year yield INCLUDES the dividends/SEC yield?

If that's the case then yes it makes things simpler.

skyrefuge

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Ok. See I thought that, for example, VGSLX has a 3.64% dividend, that that was separate from the overall ~11% annual yield (since inception). But you're telling me the percentage they give in 1, 5, and 10 year yield INCLUDES the dividends/SEC yield?

Yes, the return numbers published are always total return numbers, so they include reinvested dividends and also the expense ratio (so you don't have to subtract that either).

What is your root goal in comparing these funds that led you to want to make these calculations?

You may have heard the phrase "past performance is not a guarantee of future results", and it's true. So simply assuming that future 20-year annual return of a fund will match it's since-inception return is not really a valid approach. For example, the current (well, really 03/31/2015) since-inception return of VGSLX is 12.16%. But if you had asked this same question a year ago, the since-inception return then would have been 10.97%. In your 20-year example that would result in a final-value difference of ~$82k, a huge difference that exists simply because you asked the same question at different times.

Also, you probably shouldn't pay any particular attention to dividends when comparing funds. While they're an important component in calculating a fund's total return, they don't drive that return. It's total return that matters to the growth of your stash, and the particular method of that return (dividends vs. capital appreciation) is irrelevant (particularly inside an IRA, where there are no tax effects to be concerned with).

Crazydude

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I've got ~10K in VSGAX right now. I was simply researching other funds to see if there was something better out there. VGSLX is one I narrowed it down to. I've been contemplating making a switch to high dividend investments to use as a form of income for retirement, but I haven't committed yet, and I'm not sure I will. Also, I already own a rental property, and foresee myself purchasing more in the future, so I wouldn't really be diversifying my portfolio by adding VGSLX.

brooklynguy

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I've been contemplating making a switch to high dividend investments to use as a form of income for retirement, but I haven't committed yet, and I'm not sure I will.

You may want to do some research and reading to learn why there's really nothing special about dividends that would make such an approach particularly advisable.  Posts on the topic by skyrefuge, the forum's leading resident expert and educator on the subject, are a good resource.

skyrefuge

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Also, I already own a rental property, and foresee myself purchasing more in the future, so I wouldn't really be diversifying my portfolio by adding VGSLX.

Yes, this is the type of thing you should be focusing more on when selecting between investment alternatives, and less on the past performance. So why not just go with VTSAX? Super low expenses, broadest possible coverage of the US market, and nicely diversifies from other portions of your net worth.

And yes, getting retirement money from mutual funds is super-easy to do, even if they pay no dividends at all, so there's no need to care about the dividend yields of various funds. You just decide how much money you want, and take it. With dividends, the only difference is that it's the fund/underlying companies who decide when you should get that money, and how much it should be. Since they have no idea what your needs are, it makes a lot more sense to decide that yourself.

https://investor.vanguard.com/retirement/income/how-to-set-up-withdrawals

TypicalVillain

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I believe Morningstar's "Growth of $10,000" plots are the best way to do this. They include everything reinvested.