Greg Buliavac: “OK, I haven’t looked at your mutual fund cost calculator, but my question is, why do you need to consider the costs of a fund? Why don’t you look just at the performance numbers, since performance is calculated after costs are subtracted?”
This is exactly the right question and a lot of you have asked it. We try to answer it in what I guess is too hidden a place on the Mutual Funds Cost Calculator site. (You reach it by clicking “more” on the first page.) Click here for a direct link. Two sections are most relevant: Because Predicting Costs Is Much Easier than Predicting Performance . . . and . . . But Don’t You “Get What You Pay For?”
But if you have time, read it all and let me know what you think.
Rodney Skidmore doesn’t buy it. He writes: “Give me an ‘expensive’ manager that delivers over a low cost manager that loses money, any day.”
Absolutely! Of the 11,000 funds out there, please list for me, below, any 3 that will significantly beat the market over the next few years on an after-tax basis:
We’ll check back a few years from now, and you’ll probably be rich and I’ll probably look like an idiot.
Even so, it’s just a lot harder finding these funds looking forward than back. Which is why instead of comparing a high cost manager that “delivers” with a low cost manager that loses money, I’d compare the high cost manager with a low cost manager that makes money — as so many do.
It’s counter-intuitive that really bright guys and gals who work at it can’t fairly consistently beat the market, and by more than the extra 3%-a-year handicap, say, that a high-cost, tax-inefficient mutual fund might have to bear. After all, in a normal environment, where stocks may be expected to return about 10% a year, having to do 3% better than the pack to cover the added costs — just to wind up doing average, that is, after costs and taxes are deducted from an investor’s return — is merely to have to do 30% better than the rest. And why should that be hard?
Well: it is.
And, with a high-cost, tax inefficient fund, that merely gets you even with the pack. Actually to beat the pack, you have to do better still.
Quote of the Day
I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won't last out the year.~The editor in charge of business books for Prentice Hall, 1957
Request email delivery
- May 29:
- May 28:
- May 27:
- May 26:
- May 25:
- May 23:
Every So Often There’s A Column You Just Have To Read
- May 22:
Have A Great Long Weekend
- May 21:
Two Things To Keep Strongly In Mind
- May 20:
The World’s Stupidest Version Of A Discussion
- May 19:
The Earth Will Be Fine Without Us
- May 29: