Author Topic: Trouble eval. similarish funds???  (Read 3458 times)

AZryan

  • Stubble
  • **
  • Posts: 153
Trouble eval. similarish funds???
« on: September 10, 2014, 11:31:48 AM »
I just can't figure out how to evaluate which funds are better??

I've got the Vanguard Mid Cap Index Fund (VIMAX) in a regular account, and Roth IRAs in SOPFX (W.F. Opp Fund) and STCSX (W.F. Common Stock Fund). I want to shift the IRAs to the same VIMAX fund to make things simpler/cleaner and because I think VIMAX has been better than the other two.
But I don't really know if it has?? I'm confused as hell!

They're all basically Mid Cap-ish funds, but the Wells Fargo Funds have fees ~1.2% higher than Vanguard's,  but all seem to be real good. I think I'd be fine just leaving it, as is, but I'd like to know which has been the best one for the past 10 years, and exactly what the proof of that is.

I thought it was clearly the Vanguard VIMAX, but my wife doesn't think so, and neither of us knows how to prove who's right (therefore I am, heh).

Online comparison charts (Yahoo Finance) show VIMAX has gone MUCH higher than the other two over the past decade+, but mostly because the Wells Fargo funds drop each December when they get large dividends that VIMAX doesn't get as much.

But looking in one-year blocks starting on the date of each dividend dip (which erases it), it still looks like VIMAX consistently goes higher than the other two. I was guessing that was the effect of much lower fees, but really don't know where the drag of fees gets factored in?

The past 5 years for VIMAX has been ~19%
It was ~17% and ~15% for STCSX and SOPFX
I thought that was 'Case Closed' -VIMAX is better short term and long compared to the other two.

But then my wife says that because we've had the Wells Fargo Funds for a long time that they get way more capital gains than we get from VIMAX. And since it's in a Roth, it's all tax free.
I'm like, "Yeah, but since VIMAX goes much higher each year, that's still gotta be better...... right??"

I can't find any good place that explains how to compare similar-ish funds like this. There's just so many different data points to look at??? I always feel like there are things I'm missing or forgetting about.

I can add more info if there's something missing that keeps anyone from giving solid answers, but I figure the less specific I am, the more chance the answers have to be useful to other people who also might not know the right data points to look at to compare funds, too.

Thanks!

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Trouble eval. similarish funds???
« Reply #1 on: September 10, 2014, 12:01:52 PM »
I would say an easy way to evaluate your best option would be to compare the fund to the index it's trying to outperform. For example, SOPFX compares itself to the Russell 3000 Index (and under-performs it). If you compare the Russell 3000 to the Wilshire 5000 (both broad market indices) you will see that since inception their returns are virtually identical. So, why pay 1.3% to Wells Fargo when you can invest for .05% with Vanguard (VTSAX) for the same result.

Then, VIMAX has slightly outperformed VTSAX for the last five years after counting for dividends, so you may say that investing in VIMAX has a higher potential for return than VTSAX at just a slightly higher MER (.09%).

An even easier way to see it, from the fund websites:

VIMAX 10 yr return: 11.06% annual
STCSX 10 yr return: 10.86% annual
SOPFX 10 yr return:   8.01% annual

Bottom line, W.F. gives you overpriced under-performance. :)

BaldingStoic

  • 5 O'Clock Shadow
  • *
  • Posts: 84
Re: Trouble eval. similarish funds???
« Reply #2 on: September 10, 2014, 01:27:08 PM »
I have an admitted bias toward Vanguard. When in doubt, go with the less expensive fund, since past performance is not indicative of future performance.  Fractions of a percent add up over time.  If the fund pays lots of dividends then makes sure it's in a tax-protected (e.g., retirement account) or else the capital gains will eat away much of the gains.  You can also look at the Prospective of the funds to see the specific companies that they invest in.  One last suggestion is that unless the MidCap fits into your intentional asset allocation strategy consider inventing in a Total Stock Market fund - this keeps things simply and you can later add International Index Funds and Bonds Funds to diversify.   

AZryan

  • Stubble
  • **
  • Posts: 153
Re: Trouble eval. similarish funds???
« Reply #3 on: September 10, 2014, 02:21:29 PM »
An even easier way to see it, from the fund websites:

VIMAX 10 yr return: 11.06% annual
STCSX 10 yr return: 10.86% annual
SOPFX 10 yr return:   8.01% annual

Bottom line, W.F. gives you overpriced under-performance. :)

Thanks.
You seem to be saying exactly what I showed my wife. She was convinced and cool with me saying to dump Wells Fargo and put it into VIMAX. But then she looks in our paperwork says that the Wells Fargo funds made way more cap. gains than VIMAX (which they did do), and that's all tax free in a Roth IRA, so she thinks they're better?

I want to say, "But VIMAX still beat them both."

You seem to agree with me. So... IF we would've had the same amount in all three funds, 10 years ago, in Roth IRAs, is their 10yr. avg. returns total 100% proof that VIMAX would have made the most money in that time? Or does her comment about all these tax-free capital gains mean anything?

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Trouble eval. similarish funds???
« Reply #4 on: September 10, 2014, 02:32:27 PM »
When funds display their returns, they show total return (capital gains + dividends). Correct me if I'm wrong, but I believe that within a Roth IRA all gains are tax free, including dividends. I know they are in the Canadian TFSA (our version of Roth IRA).

If you re-invest the VIMAX dividends (through a DRIP for example), at the end of the day you would have had considerably more money in your account after the last 10 years with VIMAX vs. STCSX because even though annual returns are almost identical, STCSX takes another 1.3% off your annual return each year.

AZryan

  • Stubble
  • **
  • Posts: 153
Re: Trouble eval. similarish funds???
« Reply #5 on: September 10, 2014, 03:48:42 PM »
tobytko,

Thanks for commenting, but I don't want to just guess. It's not about past vs. future performance. I want to understand the 'past performance' correctly.

Like you (and most everyone here) my wife and I are biased toward Vanguard. Dumping Wells Fargo would make our portfolio simpler. But if the W.F. funds have been better than VIMAX because of something technical with capital gains in a tax-free Roth IRA that I overlooked or didn't understand, then I'd be dumb to swap them for VIMAX.

Since you mention Bonds and Int. Funds that don't have anything to do with this, it sounds like you assume the funds I mentioned are my only funds? Suggesting how to build a balanced portfolio is totally off-topic.
Mentioning Prospectives also doesn't help unless it relates to my question somehow.

For the record, I think Bonds mostly just keep people from getting too scared over Stock fluctuations. Stocks beat Bonds and there are better short term plans to ride out Market crashes in early retirement IMO.
Also not sure why you suggest I buy the Total Stock Market fund? Still totally off-topic, but how would trading VIMAX for VTSAX 'keep things simple' for me?

I personally recommend VTI/VTSAX to people just starting out, but I prefer the VIMAX fund. Both have super low fees and very closely follow each other. But VIMAX consistently beats VTSAX.

AZryan

  • Stubble
  • **
  • Posts: 153
Re: Trouble eval. similarish funds???
« Reply #6 on: September 10, 2014, 04:07:13 PM »
-at the end of the day you would have had considerably more money in your account after the last 10 years with VIMAX vs. STCSX because even though annual returns are almost identical, STCSX takes another 1.3% off your annual return each year.

Thanks!

Isn't that 1.3% fee factored into the annual return that, like you said, is almost identical? After you read both annual returns, do you then have to subtract the annual fee to know the 'actual' annual return?

This is where my brain's getting scrambled. In these confusing little weird hidden details.
I want to dump Wells Fargo, but I can't convince my wife VIMAX has been better than those funds.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Trouble eval. similarish funds???
« Reply #7 on: September 10, 2014, 04:36:38 PM »
Yep, you're right my bad. The MER is factored in, but sales charges, loads, etc are not. So if you have a no load fund VIMAX and STCSX would have posted virtually identical returns over the last 10 years. Over the very long run (not sure what your investing timeline is) STCSX will almost certainly begin to lag VIMAX because as we all know, the odds of beating the index drop over time.

So the question to ask your wife is, would you rather pay W.F. 1.3% of our invested money each year knowing there's a very high chance they will start lagging the index, or do you want to play it safe and boring with the same returns as the index for just .09% of our money?

My wife is cheap and boring so she will vote VIMAX.

^^lets hope she doesn't read this forum

GGNoob

  • Pencil Stache
  • ****
  • Posts: 725
  • Age: 32
  • Location: Colorado
Re: Trouble eval. similarish funds???
« Reply #8 on: September 10, 2014, 05:35:26 PM »
I vote for VIMAX (actually I like VEXAX, but VIMAX in your situation). I'll always choose the cheap index fund when possible.

AZryan

  • Stubble
  • **
  • Posts: 153
Re: Trouble eval. similarish funds???
« Reply #9 on: September 10, 2014, 06:28:18 PM »
TuxedoEagle,

Thanks again.

Logan T,

Thanks for the VIMAX vote. And, I agree, VEXAX is a hair better.