Investment Returns and Expense Ratio Question

[Rodgers12]

Ok so bare with me people, I am a little bit of a noob and I hope this isn't too confusing, but I would like to get a better understanding on expense ratios and their effect on total returns. I have been going over my investments comparing my expense ratios in the funds and some are alarmingly high. I used TD Ameritrade to compare these two funds expense ratios and total returns. This particular comparison I used UBVCX (ER 1.78%) and VISVX (ER .23%). According to TD the 10 year trailing total return for UBVCX was +8.85% and VISVX + 8.35%


At the bottom of TDs chart it does say Adjusted to reflect actual ongoing fund expenses and assumes reinvestment of dividends and capital gains.   

So am I understanding it correctly that both those 10 year return averages include the expense ratio factor into them?

[dandarc]

If they say so, yeah.  If your next question is "Why wouldn't I use UBVCX, then in spite of the higher fees?":

UBVCX is not very diverse - highly concentrated in small companies.  The risk here is very high.  So while these are both "small-value" funds, they are in fact, very different.

[forummm]

The returns include expenses. In general the higher cost funds will lose over time to the lower cost funds. You can get lucky and happen to invest in one of the higher cost funds that outperforms the index during the time it does that. But typically you will lose in the long run with high-fee funds.

[matchewed]

But typically you will lose in the long run with high-fee funds.

Especially since you're not looking at 10 year time frames in your practical life but 60 year time frames. The difference in fees compounded over time is enormous.

[forummm]

But typically you will lose in the long run with high-fee funds.

Especially since you're not looking at 10 year time frames in your practical life but 60 year time frames. The difference in fees compounded over time is enormous.

Astoundingly enormous:
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost
https://investor.vanguard.com/mutual-funds/low-cost

[Rodgers12]

Thanks for the responses everyone! Looking at opening a vanguard roth ira and Simple Ira account and funding that instead of my amerprise account which I am currently sitting with 1.96% expense ratio and not too happy about it. My advisor has me heavily invested with emerging markets which is the reasoning behind the above average extreme expense ratios. The amerprise account was set up through work and currently has money withheld each paycheck to be deposited in my Roth IRA and Simple IRA.

Does vanguard offer that option of having my employer sending in deposits which are withheld from my paychecks? I still have to check with my employer to make sure they are able to do it.

Also as far as opening an account with vanguard. Do you have to make a purchase right away or can I just fund it with a dollar amount until I am ready to buy funds?

[forummm]

Thanks for the responses everyone! Looking at opening a vanguard roth ira and Simple Ira account and funding that instead of my amerprise account which I am currently sitting with 1.96% expense ratio and not too happy about it. My advisor has me heavily invested with emerging markets which is the reasoning behind the above average extreme expense ratios. The amerprise account was set up through work and currently has money withheld each paycheck to be deposited in my Roth IRA and Simple IRA.

Does vanguard offer that option of having my employer sending in deposits which are withheld from my paychecks? I still have to check with my employer to make sure they are able to do it.

Also as far as opening an account with vanguard. Do you have to make a purchase right away or can I just fund it with a dollar amount until I am ready to buy funds?

Vanguard's VEMAX (emerging markets) fund has a 0.15% ER. If it's in an IRA, you can just buy any fund you like and then change it later if you want something different. No fees to switch funds, and no taxes in an IRA. If you want to put it in a money market fund while you think about it, VMMXX is fine.

[dandarc]

So, the SIMPLE for sure you can't just move.  That is an employer-provided account - the whole company would have to move. 

I would roll over the Roth IRA, unless there are big fees from Ameriprise for doing so.  If your employer can't do direct-deposit to Vanguard, you can set up automatic investment from your checking account at Vanguard.

[Rodgers12]

So, the SIMPLE for sure you can't just move.  That is an employer-provided account - the whole company would have to move. 

I would roll over the Roth IRA, unless there are big fees from Ameriprise for doing so.  If your employer can't do direct-deposit to Vanguard, you can set up automatic investment from your checking account at Vanguard.

I had a feeling I wouldn't be able to move the Simple. As far as the ROTH IRA goes it looks like I would have a minimum fee of $100 for closing account and $100 for transferring. I wouldn't be surprised if I would get hit with other fees as well. The Roth IRA balance is a little over 10k and I am thinking I might just leave it in there and open up the Vanguard account and start only contributing to the vanguard ROTH IRA going forward.

[dandarc]

So, the SIMPLE for sure you can't just move.  That is an employer-provided account - the whole company would have to move. 

I would roll over the Roth IRA, unless there are big fees from Ameriprise for doing so.  If your employer can't do direct-deposit to Vanguard, you can set up automatic investment from your checking account at Vanguard.

I had a feeling I wouldn't be able to move the Simple. As far as the ROTH IRA goes it looks like I would have a minimum fee of $100 for closing account and $100 for transferring. I wouldn't be surprised if I would get hit with other fees as well. The Roth IRA balance is a little over 10k and I am thinking I might just leave it in there and open up the Vanguard account and start only contributing to the vanguard ROTH IRA going forward.

So you'll pay 2% to make the transfer, roughly.  You'll save 1.5% or more every year from now until the account runs out.  I'd move it at that price.  Make sure to get all of the fees from them before you act, but if it is just the $200, it is worth it.  I'd also want to have all of my Roth money in one place for simplicity.

Once you are sure you want to make the move, the easiest thing to do is call Vanguard, and they'll walk you through the process.  Most difficult part for me was getting a Medallion Signature Guarantee from my bank.  That wasn't difficult in itself, but I did have to find time to actually go in to the bank and do it.  You might not even need that.

[forummm]

So, the SIMPLE for sure you can't just move.  That is an employer-provided account - the whole company would have to move. 

I would roll over the Roth IRA, unless there are big fees from Ameriprise for doing so.  If your employer can't do direct-deposit to Vanguard, you can set up automatic investment from your checking account at Vanguard.

I had a feeling I wouldn't be able to move the Simple. As far as the ROTH IRA goes it looks like I would have a minimum fee of $100 for closing account and $100 for transferring. I wouldn't be surprised if I would get hit with other fees as well. The Roth IRA balance is a little over 10k and I am thinking I might just leave it in there and open up the Vanguard account and start only contributing to the vanguard ROTH IRA going forward.

Take the $100 hit now. You'll have to close it at some point, right (and pay the fee)? And in the meantime, you're paying over $100 in excess fees every year!

[Rodgers12]

Do all the funds within it need to be sold before the transfer? Currently all funds held within it are no load, no transaction fees.

[dandarc]

Do all the funds within it need to be sold before the transfer? Currently all funds held within it are no load, no transaction fees.

Depends.  Some places have proprietary funds, those typically have to be liquidated before moving.  Some places can just transfer in-kind.  Vanguard can help with the specifics.

[Rodgers12]

So, the SIMPLE for sure you can't just move.  That is an employer-provided account - the whole company would have to move. 

I would roll over the Roth IRA, unless there are big fees from Ameriprise for doing so.  If your employer can't do direct-deposit to Vanguard, you can set up automatic investment from your checking account at Vanguard.

So I still looked into it and my employer said If i opened up a Vanguard Simple IRA he could deposit the funds into it. There wouldn't be an issue with vanguard receiving the money would there?

[forummm]

Do all the funds within it need to be sold before the transfer? Currently all funds held within it are no load, no transaction fees.

Depends.  Some places have proprietary funds, those typically have to be liquidated before moving.  Some places can just transfer in-kind.  Vanguard can help with the specifics.

I don't think you want in-kind--that would just be moving the funds you have now to hold them in a Vanguard account. The reason to move to Vanguard is to hold Vanguard's low-fee funds.

[Rodgers12]

Ok so looking at some of the funds held Within my Amerprise account. On top of the high expense ratios I am finding Sales Fees. Would someone shed some light on exactly how each of these different sales fees works or is taken into account.

I went on to Morningstar to get these Sale Fees number as well.

Deferred 1.00%
Initial 5.75%

[Rodgers12]

Ok so looking at some of the funds held Within my Amerprise account. On top of the high expense ratios I am finding Sales Fees. Would someone shed some light on exactly how each of these different sales fees works or is taken into account.

I went on to Morningstar to get these Sale Fees number as well.

Deferred 1.00%
Initial 5.75%

Only one fund had the Initial 5.75% and I understand what that is now. The rest are no load funds and 3 have Deferred 1%. If I sell how do I know if I will be hit with that 1% deferred?