Where are the gold bugs now?

[Kooshiball]

If you go to any mutual fund calculation website, you can calculate this. How I did it is the followings:

Annual return: 8% (It is not really reasonable to assume 8% every single year but it is standard)
Expense ratio: 3% (They will charge up to 3% in their whole expense)
Amount invested: $10,000
Holding period: 44 years

If you put all the number in, you will get expense of $45,860 and fund value less initial investment is $67,375 ($77,375 - $10,000) so total close to 70% of what you could earn was gone to expense (This example is not really 80% but assuming average annual return on 8% if it is down 7% or even 6%, expense will increase dramatically higher).

My main concern is not the expense itself. I am more concerned of opportunity cost of this. Instead of investing in this mutual fund paying $45,860 in expense, we could deploy these money to something better than this and this is the real cost to me...

Again, I am not saying that mutual fund is bad... , this is not fitting my investment strategy especially in this economic condition (Combining with this coming eurozone collapse especially PIIGS nations that lead to domino effect in US financial system. This will lead to another stock market crash)...

Hope this helps...

[photo]

If you go to any mutual fund calculation website, you can calculate this.

It's nothing less than amazing how you arrived at those numbers.

If you have an annual return of 8% and an expense ratio of 3% (which is extremely high), then you would have a net gain of 5%.

You really need to do more research on this, because there is almost no way on earth a 401(k) would cost you 70-80% in fees. Please do this for your own benefit. I've seen first-hand just how a 401(k) can grow. Even in these tough economic times, ours has still blossomed considerably.

Somehow, you've done the math wrong, and it's entirely your choice what to do with your money, but you should make informed decisions. Your ideas on expense ratios are simply wrong.

[disneysteve]

If you have an annual return of 8% and an expense ratio of 3% (which is extremely high), then you would have a net gain of 5%.

Actually, no, you would still have a gain of 8% because stated fund returns are net of expenses. Even if, for some bizarre reason, you chose to invest in a fund with a 3% ER, an 8% return is an 8% return. It isn't 8% minus the ER.

Kooshiball, you need to do some basic research about how investments work.

[photo]

Actually, no, you would still have a gain of 8% because stated fund returns are net of expenses. Even if, for some bizarre reason, you chose to invest in a fund with a 3% ER, an 8% return is an 8% return. It isn't 8% minus the ER.

Are you sure that's correct for every expense ratio that's calculated? At least for Vanguard mutual funds, that's the way it was explained to me by them.

[Mr Nice Guy]

The funds performance is 8% regardless of any fees.

Your balance would reflect 5% though as you said.

[disneysteve]

The funds performance is 8% regardless of any fees.

Your balance would reflect 5% though as you said.

This is not correct either. An 8% return is an 8% return AFTER fees are accounted for.

So if you invest $1,000 on January 1 and on December 31 the fund has had an 8% return, you would have $1,080. The expenses have already been deducted meaning the raw return was actually higher than 8%.

[photo]

This is not correct either. An 8% return is an 8% return AFTER fees are accounted for.

So if you invest $1,000 on January 1 and on December 31 the fund has had an 8% return, you would have $1,080. The expenses have already been deducted meaning the raw return was actually higher than 8%.

For a stock or mutual fund's return rate that is published, for eg, in the WSJ -- isn't that the raw return without any expense ratios factored in? Again, that was the way Vanguard explained it to me.

[disneysteve]

For a stock or mutual fund's return rate that is published, for eg, in the WSJ -- isn't that the raw return without any expense ratios factored in? Again, that was the way Vanguard explained it to me.

I don't believe that to be correct (for a mutual fund - stocks are different as they don't have internal expenses). I'm trying to find something on Vanguard's site that spells it out correctly. I'll post if/when I do.

[photo]

I don't believe that to be correct (for a mutual fund - stocks are different as they don't have internal expenses). I'm trying to find something on Vanguard's site that spells it out correctly. I'll post if/when I do.

Although Vanguard is, in general, a good mutual fund company, their "concierges" aren't particularly well educated. One told me that expenses are calculated (are you ready for this) at the end of the year. My question was naturally, "Wouldn't everyone then sell on December 31 and purchase again on January 1?" Perhaps the person who told me how the expense ratio is calculated misspoke as well.

[JBinKC]

I think the LTRO operations at the ECB is not perceived as bullish for gold and explains the sell off. Gold does not do well when there is deflationary risk when there is no risk of immediate default or during periods of forced liquidation i.e margin calls.

Over time however I believe this policy will eventually fail and the ECB will have to begin to resort to printing money.

[Kooshiball]

I think the LTRO operations at the ECB is not perceived as bullish for gold and explains the sell off. Gold does not do well when there is deflationary risk when there is no risk of immediate default or during periods of forced liquidation i.e margin calls.

Over time however I believe this policy will eventually fail and the ECB will have to begin to resort to printing money.

I totally agree with you JBinKC. Since ECB has not printed money as of yet. All the banks in Europe had to sell their assets including gold to cover their short term obligation. So price of gold is down for now but as you said, ECB will start printing money in massive scale along with the fed. Once this happens, price of gold and silver will go up as a result of money printing...

[kv968]

If you go to any mutual fund calculation website, you can calculate this. How I did it is the followings:

Annual return: 8% (It is not really reasonable to assume 8% every single year but it is standard)
Expense ratio: 3% (They will charge up to 3% in their whole expense)
Amount invested: $10,000
Holding period: 44 years

If you put all the number in, you will get expense of $45,860 and fund value less initial investment is $67,375 ($77,375 - $10,000) so total close to 70% of what you could earn was gone to expense (This example is not really 80% but assuming average annual return on 8% if it is down 7% or even 6%, expense will increase dramatically higher).

My main concern is not the expense itself. I am more concerned of opportunity cost of this. Instead of investing in this mutual fund paying $45,860 in expense, we could deploy these money to something better than this and this is the real cost to me...

Again, I am not saying that mutual fund is bad... , this is not fitting my investment strategy especially in this economic condition (Combining with this coming eurozone collapse especially PIIGS nations that lead to domino effect in US financial system. This will lead to another stock market crash)...

Hope this helps...

I see the calculators you're using and I think they're a little misleading. They're showing the "final balance" as being the return with the opportunity cost deducted. In your example of an 8% return with a 3%(extremely high) expense ratio the actual investment without the opportunity cost deducted would be more like $250k. Expenses would still be $45,860 and $10k compounded annually at 8% for 44 years would be ~$295k so in the end the expenses alone would be 18% of the final investment which is a substantial amount.

However if you use a mutual fund with an ER of 0.7% (still much higher than index funds but more of the average), you'd have expenses of $21,600 which would be 7.9% of the ending balance.

I understand what you're saying about the cost of mutual funds (although your expense of 3% is quite high) and that deploying that money elsewhere would be more beneficial. However, I'm curious as to what you consider "something better"? To me ETF's, index funds and/or individual stocks would be better expense-wise than most mutual funds, but everything has a cost. Granted, maybe not as high as 3% but there's an opportunity cost in everything.

[kv968]

This is not correct either. An 8% return is an 8% return AFTER fees are accounted for.

So if you invest $1,000 on January 1 and on December 31 the fund has had an 8% return, you would have $1,080. The expenses have already been deducted meaning the raw return was actually higher than 8%.

Steve, you're right, the 8% return is after annual expense ratios are accounted for. However, in the case Kooshiball is using he/she is assuming that its a raw return of 8% to see the effect of an added expense ratio.

[kv968]

For a stock or mutual fund's return rate that is published, for eg, in the WSJ -- isn't that the raw return without any expense ratios factored in? Again, that was the way Vanguard explained it to me.

Most mutual funds show the return AFTER the expense ratio is deducted.

Funds with a front or back-end load may differ. They'll still show the performance of the fund with the annual expense ratio taken out, but that return could differ greatly when the load is factored in depending on when you bought into it.

[Kooshiball]

I see the calculators you're using and I think they're a little misleading. They're showing the "final balance" as being the return with the opportunity cost deducted. In your example of an 8% return with a 3%(extremely high) expense ratio the actual investment without the opportunity cost deducted would be more like $250k. Expenses would still be $45,860 and $10k compounded annually at 8% for 44 years would be ~$295k so in the end the expenses alone would be 18% of the final investment which is a substantial amount.

However if you use a mutual fund with an ER of 0.7% (still much higher than index funds but more of the average), you'd have expenses of $21,600 which would be 7.9% of the ending balance.

I understand what you're saying about the cost of mutual funds (although your expense of 3% is quite high) and that deploying that money elsewhere would be more beneficial. However, I'm curious as to what you consider "something better"? To me ETF's, index funds and/or individual stocks would be better expense-wise than most mutual funds, but everything has a cost. Granted, maybe not as high as 3% but there's an opportunity cost in everything.

Yes one of them can be individual stocks and some ETF (I own some of those that making sense in this state of economy). I am also investing in various real estate deals and other alternative investments like hard money loan. I am also looking at investing in ATM machine (I have access to that kind of deals. Nowadays, banks in trouble so they increase in the ATM fee for non-customers. It is extremely great for us since we can increase the ATM fee on our side as well). Those deals are not advertised so need to find them but return is very lucrative.