Author Topic: Question about expense ratio  (Read 1365 times)

firescape

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Question about expense ratio
« on: May 04, 2017, 02:11:15 PM »
I have a very basic question about expense ratios, and how exactly they work.
I own roughly $350k worth of American Funds, with a few Franklin Templeton funds mixed in. They are all class A shares bought several years ago. I'm trying to grasp exactly what these now cost me per year. I know I paid the up-front load of 5.75% on all of them (ouch!), and have the expense ratio, which averages among all the funds at about .75%
Is my math correct in this example, that I'm paying .75% on $350k, which is $2625/year to continue to own these funds?


nereo

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Re: Question about expense ratio
« Reply #1 on: May 04, 2017, 02:15:31 PM »
First - ouch!  That's a horrible, unnecessary fee you paid to buy the shares, and that you are continuing to pay to own them.

Second - your math is correct; assuming the value stay constant you will pay $2,625 everey year to continue to own these funds.
For comparison, owning admiral shares of Vanguards SP500 would cost you just $140/year*

*it's probably not an apples-to-apples comparison, as I"m guessing your investment in American Funds is actively managed.  That doesn't necessarily mean it outperforms the SP500 index funds; in most cases it won't.

seattlecyclone

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Re: Question about expense ratio
« Reply #2 on: May 04, 2017, 02:15:43 PM »
Yep, sounds right.

Spork

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Re: Question about expense ratio
« Reply #3 on: May 04, 2017, 02:29:18 PM »
First - ouch!  That's a horrible, unnecessary fee you paid to buy the shares, and that you are continuing to pay to own them.

Second - your math is correct; assuming the value stay constant you will pay $2,625 everey year to continue to own these funds.
For comparison, owning admiral shares of Vanguards SP500 would cost you just $140/year*

*it's probably not an apples-to-apples comparison, as I"m guessing your investment in American Funds is actively managed.  That doesn't necessarily mean it outperforms the SP500 index funds; in most cases it won't.

For fun's sake, a more apples-to-apples would be VWUSX.  I picked it because it was the most expensive active Vanguard fund that jumped out at me.  (I didn't exhaustively search for the most expensive... just looked for a "big" one.)   That one would still be $1610 a year.  And that's with no silly front end load.

firescape

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Re: Question about expense ratio
« Reply #4 on: May 04, 2017, 03:07:52 PM »
Thank you all for the feedback, it really helps. I very thankful I've discovered this site, and have doing some work on getting the 'what is so' about my investments. To make matters worse, some of these funds are real turds!
My plan is to begin to move away from American Funds and into Vanguard. Bunch more to learn...


nereo

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Re: Question about expense ratio
« Reply #5 on: May 04, 2017, 04:16:07 PM »
Thank you all for the feedback, it really helps. I very thankful I've discovered this site, and have doing some work on getting the 'what is so' about my investments. To make matters worse, some of these funds are real turds!
My plan is to begin to move away from American Funds and into Vanguard. Bunch more to learn...
Yes, step away from those American Funds - make that a financial goal of 2017.

For basic learning, I highly recommend this:
http://jlcollinsnh.com/stock-series/

Good luck and stick around.

firescape

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Re: Question about expense ratio
« Reply #6 on: May 04, 2017, 06:41:54 PM »
Thanks Nereo, I'm checking out Collins right now.