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Monday, December 6, 2021

Money Challenge: Check Your Expense Ratios – Corporette.com

This is the second in our series on occasional tasks you can do to improve your financial well-being. I’m not a personal finance expert — this is just stuff that I do myself from time to time. If you have any comments or different strategies, I’d love to hear them! See the entire Money Challenge series here.

(If you’re looking for more basic investing advice, I’d suggest taking a look at our Money Roadmap, which lays out what steps you should take and in what order, with links to posts with more information and discussion.)

WHY You Should Check Your Expense Ratios

There is very little that’s certain in the investing world, and one often feels like a crystal ball would come in handy. But one thing is not uncertain, and it’s how much money you’re paying to hold an investment — the different fees, administration costs, overhead, and management that reduce your return on investment. This is the expense ratio — and I largely credit the readers with teaching me that the lower it is, the better it is.

Corporette reader favorites - most bought items in July 2021

Here’s a quote from Investopedia on how much the expense ratio matters (they have a whole handy little chart, too, if you feel like clicking through)….

…[E]ven a small difference in expense ratio can cost you a lot of money in the long run. If you had invested $10,000 in the fund with a 2.5% expense ratio, the value of your fund would be $46,022 after 20 years. Had you instead invested your $10,000 in the fund with a lower, 0.5% expense ratio, your investment would be worth $61,159 after two decades, a 33% improvement over the more expensive fund.

Now, the ideal time to check your expense ratio is when you’re making a new investment. But maybe you didn’t really know to pay attention to that particular number when you were investing. So today’s money challenge: Check your expense ratios.

If you find something that’s a lot higher than the others, I further challenge you to a) decide if you want to keep putting money into it, b) try to take a look at the fund’s trajectory and decide what would be a good price to sell. (From there you can set up a stop limit order or just set an alert to watch the fund prices.)

(Side challenge: while you’re looking at your accounts, make sure you’re reinvesting your dividends. There may specific situations where you don’t want to reinvest the dividends, like early retirement, but in general if you don’t know much about them you should just reinvest them. Schwab shows me a column with “reinvest dividends?” on my Positions page.)

My husband and I have accounts at Schwab and Vanguard (as well as his 401K at American Funds). I used to have an IRA at Fidelity but rolled it over into Vanguard because the fees were high and the returns weren’t great.

Don’t forget to check the expense ratios on the funds you hold in your retirement accounts — you may decide on different allocations in an active 401K, and you may decide you want to roll over an older 401K from a former job. (I know I’ve sat on the rollover task far too long the few times I’ve done it!)

{related: check out our personal money snapshots, where anonymous readers share their net worth, salary, and other thoughts on personal finance}

Where to Find Your Expense Ratios: Schwab

The tricky thing with expense ratios is that they’re relatively hidden. Logging in to Schwab, I don’t see them on my Balances page or my Positions page. Instead I have to click on the individual fund and look at it in “Fund Facts & Fees.” Here’s the first fund, the Schwab S&P 500 Index Fund SWPPX, which has a little note at the top that it’s a “no load no fee” fund and is, in fact, an index fund, meaning there should be almost no overhead expenses because they’re just investing in whatever is in the S&P 500.

You can see that the expense ratio (at the top and under the “fund fees” section) is .02% — pretty good. Schwab also tells me the category average right below the gross/net ratio, and for SWPPX it’s .83% — so .02% is much better than the “category average.”

(Just a note that the fund profile above also includes whether or not Schwab rates the fund as “socially responsible,” if that’s something that’s important to you — but that would probably require more management and thus higher fees. But I’d love to hear about it if you’ve started trying to only make socially responsible investments!)

I mostly hold stocks and index funds in my Schwab account, but looking at a few of the mutual funds I still hold (from my earliest days of investing!) my expense ratios are:

Fund Fund’s gross expense ratio Category average ratio (Percent of my account)
JACTX .92% .99% 1.58%
LSBRX .92% 1.0% 1.87%
WOGSX .93% .828% 3.9%

So these fees are way higher. These funds make up just a small portion of my account (the fourth column); even though I know they’re not super great investments I figure they bring some diversity to my account, and I’m weirdly sentimental about them. Still, they’re the first places I will look if the market is down at the end of the year and I can sell them for capital losses. Looking at this, the WOGSX fund, White Oak Growth, has a pretty high expense ratio and is even higher than the category average — and it’s almost 5% of my Schwab account. My assessment: time to start watching that one and pick a time to get out.

(I should note that the LSBRX fund is a bond fund, which has different metrics. But even then, compared to my Vanguard bond funds, LSBRX isn’t great — my Vanguard expense ratios are between .05-.07%.)

{related: financial tasks to do at year-end}

How bad are the fees? They’re still below 1%, right? As part of this exercise I just looked at my husband’s 401K account, managed through American Funds — it’s such a small group they don’t offer index funds, and in fact ALL of the fees for the available funds for investment had expense ratios between 1.32% and 1.78%. Not great, Bob, but we’re stuck with those options unless he quits his job and we can roll the money into an account at Vanguard or Schwab.

Where to Find Your Expense Ratios if You Have the Symbols

Just a note here that if you have a list of which funds you’re in, and their stock symbols, you can just look them up from Google — just putting RWMBX (one of his 401K funds) into the address bar pulls up this information from Google, including the expense ratio.

For what it’s worth, a lot of times when I’m trying to plan a buying or selling strategy for a particular stock or fund, I just use this tool to click around and see how the stock price and the chart has changed over the last six months to a year to see “when I wish I’d gotten in” (or out). I’m sure there are much, much fancier methods of doing research, but for the time being I’ve had a lot of success with this.

Now is probably a good time to point out more extensive research tools like Morningstar… which I almost never use. (Readers, do you have favorite ways to research stocks and funds? I’d love to hear them…)

How to Check Your Expense Ratios at Vanguard

Next, over to Vanguard… I mostly hold index funds at Vanguard, which I chose intentionally because they have really low fees. Another advantage to Vanguard is that they offer Admiral Funds, which have a higher minimum investment (generally $3K–$50K) but in exchange offer a lower fee. According to the company, the Admiral Shares expense ratios are “35% lower than our standard Investor Share class, and 82% lower than the industry average.”

(But even this you should check — just this morning I noticed that one of their big, popular stock market Admiral Funds (Vanguard Total Stock Market Admiral Shares, VTSAX) has an expense ratio of .04% and a $3K minimum investment, while the sister ETF fund (VTI) has a much lower minimum (one share, which today is around $235) and a lower fee of .03%. Interesting.)

I actually keep an Excel spreadsheet of all of my various funds in Vanguard with the stock ticker symbol, so I found it easiest to just add a column on my chart for fees and then use Google to find the fees. Some are as low as .04 (VTSAX), while others are as high as .38 (VWUSX).

(Drat, I just found it — you can go to your Holdings Page, and then look at Prices & Returns, and see your expense ratio. See the image below (redacted a bit).)

Interestingly, the ones I was expecting to be really bad in Vanguard weren’t bad at all. We have money in two different “retirement funds,” where the funds reallocate the makeup of the holding as the deadline (retirement) approaches — but both of them were a .14% ratio. Way better than my long-held Schwab funds and my husband’s 401K funds. We also have a bit of money in a REIT (VGSLX), which I know hardly anything about but my husband was interested in — but even then the expense ratio was only .12%.

Like with Schwab, in Vanguard I had to do a lot of clicking to find the information about expense ratio. I found Google to be easier since I already had a chart with all my symbols, but you can also look on the fund profile page.

Here’s What I Learned When I Checked My Expense Ratios

And, done! Having done this review today, I probably won’t think about these fees for the next 5–10 years, to be honest. I’m happy with my Vanguard fund fees for the most part, even though I think my Schwab index fund fees were my rock bottoms. It’s also reminded me that by being sentimental about holding my older funds I’m not necessarily doing myself any favors, and I really need to look more closely at them to decide if they actually are adding diversity, and whether the rate of return is better or worse than I could be getting in other investments.

(The one redeeming feature of the most expensive fee (WOGSX) is my unrealized gain/loss — 153.91% according to my Schwab, which is pretty good. One of them (LSBRX) is at -2.5% though, so that one may be at the top of my list to start selling before the end of the year since it’s a negative. I don’t actually check my unrealized gains/losses on individual funds on a regular basis, I’d love to hear how more experienced investors check those issues. I last did a big “reallocation” project where I tried to balance my portfolios a few years ago. It’s easy if all of your money is in one place, but harder if it’s spread among investing accounts at Vanguard, Schwab, and Fidelity — I’d probably take that kind of information into account only at the reallocation point.)

Readers, what are your thoughts on investments? Do you know what your expense ratios are? If you have a partner, who manages your finances? What are your “set it and forget it” kind of investments?

Stock photo via Deposit Photos / Andrey Popov. All screenshot taken by Kat.

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