Investment Fees and Return?

[Rocketman]

In looking at the choices we have in my 401k it generated a question.

I have 2 funds for my large cap stocks:

A low fee s&p 500 and
A higher fee large cap fund.

Normally I always chose the low fee fund, however the 1, 3, 5, and 10 year returns are higher on the the large cap fund.

My question is are the expenses taken out before or after the performance rate is calculated?

If before the large cap fund is doing better in all periods, if after then the large cap is better in the 1 and 3 year periods - tied in 5 year and slightly worse in 10 year.

Thanks for your help.

[ysette9]

Do not look at the returns when comparing these two funds because you are comparing apples to oranges (a bit) and the 3-year performance tells you nothing about how these two funds are going to perform in the future. The very best indicator of long term performance is free. Pick the lowest fees, make sure your asset allocation is appropriate for you, and then forget it.

https://investor.vanguard.com/investing/how-to-invest/impact-of-costs

[MDM]

My question is are the expenses taken out before or after the performance rate is calculated?

Before.

Tax effects (e.g., if one has more distributed capital gains than the other) are often not included.  Doesn't matter in a tax-advantaged account, but does in a taxable account.

[MustacheAndaHalf]

Typically, mutual fund expenses are removed from stock dividends, and then you receive whatever remains.

Have you read the Securities and Exchange Commission (SEC) guidance on past performance?  Every mutual fund prospectus is required to mention it:

"That's why the SEC requires funds to tell investors that a fund's past performance does not necessarily predict future results."
https://www.sec.gov/fast-answers/answersmperfhtm.html

[Scandium]

So per mean reversion the S&P fund is due to do better, and it has lower fees? Sounds like easy choice to me!

[Telecaster]

Normally I always chose the low fee fund, however the 1, 3, 5, and 10 year returns are higher on the the large cap fund.


Thanks for your help.

Different cap sizes will perform differently over different periods of time.  The last 10 years large caps have done well.  The prior ten years was the mid-cap decade. 

Remember, the market goes up and down, but money lost to fees is gone forever. 

[jacoavluha]

I have 2 funds for my large cap stocks:

A low fee s&p 500 and
A higher fee large cap fund.

I would choose the low fee 500 index.

The way you phrase your question, is this only a portion of where you invest your 401k funds? If so, where are the remainder of your funds invested?

[Car Jack]

What do you actually know going forward?

The fees are in the prospectus.  You know for sure what they are.

The returns are totally unknown.  You can say that in the past.........  I can say that in the past, the world series winner was ......... so should I bet my life's savings on the past world series winner?  Don't look where the puck was.  You get what you don't pay for.

500.....all the way.