More great investment advice from the Dave Ramsey camp!

[Deleted]

(I had to remove the link because it had my personal info in it, but here is my best copy/paste attempt)

No-Load funds cost you more!

Chris Hogan is a DR affiliate and is often on his show and endorsed by Dave.  He's the one that had that awful "Retirement IQ" calculator I posted a while back.

How to Avoid Outrageous Mutual Fund Fees

The costs associated with investing for retirement aren't always clear—and I don't like hidden stuff. It gives me the same feeling I get when my car's been in the shop and it's time to pay the bill. My stomach feels like it's tied in knots. You know what I'm talking about.

Now stretch that feeling out over 30 years of retirement investing, and all those unknown costs could cause me a lot of anxiety. But I've found that I can avoid that hassle—and a lot of expense—by investing for my retirement mainly through mutual funds that charge an up-front commission. Not only do I know what I'm paying from the get-go, but over the long term, many front-loaded mutual funds are a better deal than the funds that don't charge a commission at all.

How is that possible? Let's take a look at how some mutual fund options charge fees and how that can affect the growth of your retirement nest egg.

To Load or Not to Load?

As I mentioned, I invest in front-loaded funds that charge the commission on my initial investment. Others charge the commission when you sell or cash out of the fund. That's a back-end fund. Mutual funds that don't charge a commission at all are called no-load funds.

The commission pays your advisor for their work in helping you pull together your retirement savings strategy and compensates them for their ongoing commitment to assist you in keeping that strategy on track over the years.

By paying the commission up front, it has less impact on the overall cost of owning the fund than if you paid the commission on the back end—after it has grown from a few hundred dollars to hundreds of thousands!

"No Commission" Does Not Mean "No Cost"

No-load funds may sound tempting since you don't have to pay a commission, but there are plenty of ongoing fees that add up, which could make them more expensive than loaded funds. For example, here's a cost comparison using numbers from two real-life growth funds, one front-load and one no-load, on a one-time $10,000 investment:





The total cumulative fees you'd pay on the loaded fund come out to about $71,000. For the no-load fund, the total is nearly $213,000! So not only could investing in this no-load fund cause you to delay retirement for five years, you'll lose $140,000 to fees. Could you find no-load funds that are less expensive than loaded funds? Sure you could. But this example shows that a no-load isn't automatically a better deal just because you don't have to pay a commission.

The thing is, you might not realize how much your no-load fund is costing you until you've been invested in it for a few years. And you'd only know it then if you were keeping an eye on your costs and comparing them to other funds. That's just like having your car in the shop and not knowing how much the repair will cost until you pick it up. If you don't know what you're dealing with on the front end, you will always be worried about the bill.
More Reasons to Go With Up-Front Fee Funds
I've been burned on too many car repair jobs to be okay waiting until the work is done to find how much it will cost. The place I go now tells me how much it will be up front, and they stick to it. Over time—I hold on to cars forever, so I get them fixed a lot—I've developed a relationship with the people at this garage. They know me when I come in, and they know the drill. They know not to play games with me on price, and they understand the level of service I expect.

Could I get my car fixed cheaper somewhere else? Maybe, but I keep my cars for so long, cheap isn't my goal. I want it done correctly at a fair price because I'm going to be driving my family around in that car for a long time.

You have to keep a long-term view with your mutual fund investments as well. Would it be cheaper to invest in a no-load fund versus a front-load fund? Today, yes. It would be cheaper. But in the long run, you can end up paying way more, as our example above shows.

Now, with all that said, a combination of low-cost front-load and no-load funds can reduce your expenses so you can capitalize on your investments' growth. But there's more to choosing funds than price. You want a diversified mix of funds with a history of good performance. To achieve that perfect mix and maintain it over time, make sure you're working with an advisor you can trust—one you'll want on your team over the decades as you work toward your retirement goal.

Please see post #15 for a link to a site that will give access to the information once a quiz is completed.  Direct links cannot be provided without compromising the OP's identity.  The Captain - Mod.

[beergut]

Was there more information given in his example? Saying "X load-fund costs this, and Y no-load costs this" gives me no information on how he came up with his numbers. How does he go from $10k investment to $210,000 in fees?

I also question anyone who talks about the costs of mutual funds, and doesn't mention short-term capital gains.

If this guy was talking about why index funds are ultimately cheaper than mutual funds, I'd listen, but arguing load funds are cheaper than no-load funds is just funny.

And who the hell takes their car to a mechanic who doesn't tell you what it is going to cost up front? 

[Deleted]

Jul 23, 2015 9:36:58 GMT -5 beergut said:

Was their more information given in his example? Saying "X load-fund costs this, and Y no-load costs this" gives me no information on how he came up with his numbers. How does he go from $10k investment to $210,000 in fees?

I also question anyone who talks about the costs of mutual funds, and doesn't mention short-term capital gains.

If this guy was talking about why index funds are ultimately cheaper than mutual funds, I'd listen, but arguing load funds are cheaper than no-load funds is just funny.

And who the hell takes their car to a mechanic who doesn't tell you what it is going to cost up front? 

Shoot.  I thought I had a picture in there, but it's not showing up.  I'll try to fix.  Hold please.

[beergut]

Jul 23, 2015 9:39:58 GMT -5 minnesotapaintlady said:

Jul 23, 2015 9:36:58 GMT -5 beergut said:

Was their more information given in his example? Saying "X load-fund costs this, and Y no-load costs this" gives me no information on how he came up with his numbers. How does he go from $10k investment to $210,000 in fees?

I also question anyone who talks about the costs of mutual funds, and doesn't mention short-term capital gains.

If this guy was talking about why index funds are ultimately cheaper than mutual funds, I'd listen, but arguing load funds are cheaper than no-load funds is just funny.

And who the hell takes their car to a mechanic who doesn't tell you what it is going to cost up front? 

Shoot.  I thought I had a picture in there, but it's not showing up.  I'll try to fix.  Hold please.

Dangnabbit!! <hides head in shame> I know the difference between there, their, and they're, but sometimes my fingers get ahead of my brain. Edited reply.

[justme]

I'm willing to bet money that 5.75 fee (are you kidding me!) was not taken from the initial investment. For an apples to apples comparison he'd need to compare 10k in a no load to 9425 in a load.

[Ombud]

This is so wrong, it's just funny!! Now if the point was that expense ratio fees add up then correct. But to say load funds are less expensive in the long run than no loads is WRONG!

[Deleted]

Jul 23, 2015 9:48:16 GMT -5 beergut said:

Jul 23, 2015 9:39:58 GMT -5 minnesotapaintlady said:

Shoot.  I thought I had a picture in there, but it's not showing up.  I'll try to fix.  Hold please.

Dangnabbit!! <hides head in shame> I know the difference between there, their, and they're, but sometimes my fingers get ahead of my brain. Edited reply.

Do you punch people in real life for making simple grammar errors? Seriously, I don't think most people care when you do it occasionally on a message board.

[Deleted]

For a no load fund he is citing 1.83 as the expense ratio? Why doesn't he compare it to Phils Vanguard S&P 500 .05 expense ratio?

[myrrh]

Funny how he ignores the no load fund with the 0.25 annual fee.

I think this page has a fun chart to play with.

personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost

[Deleted]

What pisses me off, is he is self proclaimed as "America's Voice on Retirement", but his advice is so crappy and Dave pushes him like he's got all the answers.

I found this thread on Bogleheads by another guy about as irritated as me. 

www.bogleheads.org/forum/viewtopic.php?t=168046

[beergut]

Ok, I see the image now.


According to my Phil Script, a lump sum investment of $10,000.00 bearing an annual return of 11% could grow to $1,095,302.42 in 45 years!

So we're looking at an assumption of almost 11% return per year, or mutual funds that are remarkably close to mimicking the return of the S&P 500.

Does he have a chart where he breaks the annual fees down year by year?

I also don't think he understands the difference between load and no-load mutual funds. A front-load mutual fund simply means he is going to pay that 5.75% every single time he makes a purchase, it is not a one-time fee. A back-end load means he'll pay the same fee, just pays it when he redeems shares of the mutual fund. 

He is conflating back-end loaded funds with front-end loaded funds, and basically saying all no-load funds are back-end loaded funds. He then uses expense ratios of two funds, one a loaded fund, one a no-load fund, to try to 'prove' his incorrect assertion.

In short, the author is an idiot. 


 

[beergut]

Jul 23, 2015 9:58:57 GMT -5 @aj said:

Jul 23, 2015 9:48:16 GMT -5 beergut said:

Dangnabbit!! <hides head in shame> I know the difference between there, their, and they're, but sometimes my fingers get ahead of my brain. Edited reply.

Do you punch people in real life for making simple grammar errors? Seriously, I don't think most people care when you do it occasionally on a message board.

Most people? No. I do call up my brother and taunt him with "You're a college graduate, write like it!!!" whenever he makes some egregious errors on his blog, as he does to me. Keeps me honest. 

[Plain Old Petunia]

I dislike this sort of sales tactic.   If he wants to compare the typical load fund to the typical no-load fund, he should use the industry average for both types of funds.  Instead, he uses a lower-than-average load fund and compares that to a higher-than average no-load fund.

In my opinion, this sort of tactic is misleading.

[The Captain]

Jul 23, 2015 8:05:28 GMT -5 minnesotapaintlady said:

(I had to remove the link because it had my personal info in it, but here is my best copy/paste attempt)

No-Load funds cost you more!

...

MPL - I believe we may run into copyright issues without an appropriate link or at least a full cite of the source. Is there any way to access this information that doesn't compromise personal information? If not, please try to summarize your issue with the advice and state where you got the information from.

Thanks! - The Captain (amateur mod)

[Deleted]

Jul 23, 2015 11:13:11 GMT -5 The Captain said:

Jul 23, 2015 8:05:28 GMT -5 minnesotapaintlady said:

(I had to remove the link because it had my personal info in it, but here is my best copy/paste attempt)

No-Load funds cost you more!

...

MPL - I believe we may run into copyright issues without an appropriate link or at least a full cite of the source. Is there any way to access this information that doesn't compromise personal information? If not, please try to summarize your issue with the advice and state where you got the information from.

Thanks! - The Captain (amateur mod)

It was an email from Chris Hogan.  When you do is Retirement IQ test you get on his mailing list.  If I select to view it as webpage it has my email address on the bottom.  I can do a series of screen shots.

[The Captain]

Thanks minnesotapaintlady! - I think you can access that without an e-mail invite by going to the following:

www.chrishogan360.com/

I'll just add a sentence to your original post mentioning this information in my post number.

[Deleted]

Wait... Beer has a blog ?

[Deleted]

This may not be as hare-brained as it sounds. A significant portion of my retirement savings is in American Funds. Yes, I did trade a high up-front fee for a lower ongoing fee (but not as low as index funds). If you invest only a little, it really is 5.75%. If I were to invest more right now, I'd pay 2.5% because of how much I have invested in them, so the 5.75% doesn't apply at all.

And, in the end, what really matters to me is how much I'm left with compared to similar investments. If they do worse than the appropriate indices, ANY load is excessive. If I net more than I would have with an index fund after all the fees are paid, I'm happy.

[Wisconsin Beth]

Jul 23, 2015 9:36:58 GMT -5 beergut said:

And who the hell takes their car to a mechanic who doesn't tell you what it is going to cost up front? 

I do.  My mechanic's been working on my cars (or my family's cars) since roughly 1986.  I take my car in (or call), tell them the issue and get an appt. slot.  I leave car there, get a call after he's looked at where they explain what needs to be done and usually a couple of choices on how much it'll cost to fix it.  For example, I took my minivan in for brakes about 6 weeks ago, I got a call with 2 different options.  Cost difference was around $20. 

My husband inherited my mechanic when we started dating.    But when he's talked car stuff with his coworkers, they think we're getting an amazing deal with ours.  I happily refer people to my mechanic. 

[Deleted]

Jul 23, 2015 15:01:34 GMT -5 Wisconsin Beth said:

Jul 23, 2015 9:36:58 GMT -5 beergut said:

And who the hell takes their car to a mechanic who doesn't tell you what it is going to cost up front? 

I do.  My mechanic's been working on my cars (or my family's cars) since roughly 1986.  I take my car in (or call), tell them the issue and get an appt. slot.  I leave car there, get a call after he's looked at where they explain what needs to be done and usually a couple of choices on how much it'll cost to fix it.  For example, I took my minivan in for brakes about 6 weeks ago, I got a call with 2 different options.  Cost difference was around $20. 

My husband inherited my mechanic when we started dating.    But when he's talked car stuff with his coworkers, they think we're getting an amazing deal with ours.  I happily refer people to my mechanic. 

Yeah, but he still tells you how much it's going to cost before he does the work.  Chris Hogan was talking about getting burned by mechanics that didn't tell you how much a repair was going to cost period.  As in you show up at the end of the day with your fingers crossed. 

[Wisconsin Beth]

Jul 23, 2015 15:10:49 GMT -5 minnesotapaintlady said:

Jul 23, 2015 15:01:34 GMT -5 Wisconsin Beth said:

I do.  My mechanic's been working on my cars (or my family's cars) since roughly 1986.  I take my car in (or call), tell them the issue and get an appt. slot.  I leave car there, get a call after he's looked at where they explain what needs to be done and usually a couple of choices on how much it'll cost to fix it.  For example, I took my minivan in for brakes about 6 weeks ago, I got a call with 2 different options.  Cost difference was around $20. 

My husband inherited my mechanic when we started dating.    But when he's talked car stuff with his coworkers, they think we're getting an amazing deal with ours.  I happily refer people to my mechanic. 

Yeah, but he still tells you how much it's going to cost before he does the work.  Chris Hogan was talking about getting burned by mechanics that didn't tell you how much a repair was going to cost period.  As in you show up at the end of the day with your fingers crossed. 

Fair enough. 

I once left him my Ford Pony for a week to try to figure out what a noise was.  I was up North with family and I wasn't driving.  That one drove him nuts.  It turned out it was a pinhole in one of the hoses but I swear he spent around 40 hours looking before he found it (there were multiple days when I left my car there.  And then he only charged me the cost of the hose and the time to swap the old and new ones out.  Once you find a good mechanic, you hang on to them for dear life.    He's right up there with my stylist as to "where you go, I go" 

[Ombud]

I think the costs are clear. Anyway the costs I pay:

♤ Individual stocks - $8.97 initial, $0.0 reinvestments

♡ ETFs - $8.97 initial, $0.0 reinvestments, net expense ratios 0.08%. Schwab ETFs have no sales charge. Most retirement investments are in Schwab ETFs

◇ CDs - inherited, opportunity cost unless sold in secondary market. Expensive to do that ($35 ish?? Only did that once)

♧ cash - only opportunity costs

☆ Options aren't in retirement accounts

[beergut]

Jul 23, 2015 15:01:34 GMT -5 Wisconsin Beth said:

Jul 23, 2015 9:36:58 GMT -5 beergut said:

And who the hell takes their car to a mechanic who doesn't tell you what it is going to cost up front? 

I do.  My mechanic's been working on my cars (or my family's cars) since roughly 1986.  I take my car in (or call), tell them the issue and get an appt. slot.  I leave car there, get a call after he's looked at where they explain what needs to be done and usually a couple of choices on how much it'll cost to fix it.  For example, I took my minivan in for brakes about 6 weeks ago, I got a call with 2 different options.  Cost difference was around $20. 

My husband inherited my mechanic when we started dating.    But when he's talked car stuff with his coworkers, they think we're getting an amazing deal with ours.  I happily refer people to my mechanic. 

That to me is normal, I do the same thing. Maybe I'm misinterpreting his article, but it seems to me that he was saying he'd take his car in, tell them to fix it, then fret about what it was going to cost. Taking it in because you know something is wrong, letting them look it over, and then have them call you with the issue and how much it is going to cost seems to be pretty standard. 

We have a family mechanic who has been working on our cars for over thirty years, and I have a buddy who owns a body shop for cosmetic issues. Once you find a good mechanic who is fair on pricing, you hold onto him (or her) for dear life.

[Lizard Queen]

"Taking it in because you know something is wrong, letting them look it over, and then have them call you with the issue and how much it is going to cost seems to be pretty standard."



In fact, getting a quote before they go ahead and work on your car may be the law.  They also have to give you your old parts back if you ask for them.  I think they can charge labor by the book rate, or actual time it takes, but it has to be consistent.  That may be where the discrepancy in pricing comes in a lot of the time.  (That, and going to the dealer always seems to be a rip-off.)

[Plain Old Petunia]

Jul 23, 2015 19:49:08 GMT -5 Ratchets said:

One thing I would caution about is the target date funds - looked at them at Fidelity and they are pricey.  Each fund within that fund has management fees, and then the management fees for the target date fund were even higher!  How is that even possible!  All you're doing is buying XX percent of this fund and that fund, a high school kid could do that, not a freakin' Harvard grad!

Not all target funds are equal. Some suck, some are quite good. I believe you are mistaken about Fidelity having an extra layer of fees. They used to charge an additional layer, but took a lot of flack over that, so stopped. The quoted ER is the weighted average of the underlying funds. Neither Vanguard nor T. Rowe Price have ever charged an additional layer of fees. Some crappy load fund companies did charge an extra layer when TR funds first came out, and maybe still do, I don't know.

[Plain Old Petunia]

BTW Ratchets, I love your new avatar. I hope you post a lot in every thread, so I can enjoy your avatar frequently.

[Wisconsin Beth]

Ratchets your avatar is gone now. 

[Plain Old Petunia]

Jul 24, 2015 12:25:57 GMT -5 Ratchets said:

Jul 24, 2015 11:27:12 GMT -5 Plain Old Petunia said:

BTW Ratchets, I love your new avatar. I hope you post a lot in every thread, so I can enjoy your avatar frequently.

I had a whole photo shoot professionally done up, if you'd like to see the rest I can email them :-) !

Hey, wait!!  I want that last avatar back!  

[Chocolate Lover]

Jul 24, 2015 13:21:46 GMT -5 Wisconsin Beth said:

Ratchets your avatar is gone now. 

Thank god!

[beergut]

Jul 23, 2015 11:58:33 GMT -5 oped said:

Wait... Beer has a blog ?

Yes. 

Just Wait Til Next Season

I primarily talk about A&M athletics, and mostly Aggie football at that, but I'll branch out on any topic involving college sports.