Calculating expense ratio

[blackdiamond]

How do you calculate you overall expense ratio for your portfolio? ( sorry if this a stupid question).

My thought is you add up all your funds expenses ratios and divide by the number of funds. Is this the right way or am I missing a something?

[rovo]

The above calculation would give you the average expense ratio of your funds providing all the funds have equal dollars in them. More likely than not the funds do not have equal dollars in them and then you would have to "weight" the average based upon the dollar value of each fund.

[blackdiamond]

Rovo is there a formula that can do this?

[rovo]

Yes. We can make up a formula to calculate the effective expense ratio for a portfolio of funds. That said, my math skills have been questionable of late.

Assuming three funds but just increase if more than three funds.
$F(a) = dollars in fund "a".
ERF(a) = expense ratio of fund "a".

$F(a) + $F(b) + $F(c) = $F(t) = total dollars in funds.

[ $F(a) / $F(t) * ERF(a) ] + [ $F(b) / $F(t) * ERF(b) ] + [ $F(c) / $F(t) * ERF(c) ] = effective expense ratio.

I'm sure some of the other guys will check this and will comment if I screwed up (again).

[yclept]

Rovo, blackdiamond,
You can't add percentages that way! For shame!
Using the above terminology:

ERF(a) x $F(a) + ERF(b) x $F(b) + ERF(c) x $F(c) = C(t) = total fees paid

C(t)/$F(t) = effective expense ratio for entire portfolio.

The bigger question is unless these fees are very very low, why are you paying someone else a fee to invest your money instead of learning to do it yourself? If one only feels comfortable using mutual funds, one should at least confine the selections to those that charge very low fees, in which case the expense ratios shouldn't be an important consideration.

[rovo]

Yclept: You can't add percentages that way! For shame!

Sure I can. It is only a matter of correctness. ;D

Actually it still looks correct to me.

OK, how about and example of three funds at different imaginary expense ratios.
$2,000 in Fund A at 1%; $4,000 in Fund B at 2%; & $4,000 in Fund C at 3%.
Fees per fund are $20 + $80 + $120 = $220 or 2.20%

Using the above formula yields:
0.20% + 0.80% + 1.20% = 2.20%

[mtntigger]

yclept - You know you said the same thing as rovo, dontcha?

[yclept]

Yep, your formula works. Doesn't seem like it ought to, guess I'm getting senile. I reckon best use of my time today will be to go out and spray the driveway weeds with round-up. Weather has been really nice here the last week or so, sunny and temperatures almost 70F. We had a lot of rain earlier, so the weeds are loving it!
That, and the walnut tree dropped the last of its leaves a week or so ago -- time to start trimming it and the cherry, orange, grapefruit (6 of those devils). Then there's the tan oak that planted itself a few years ago. It seemed kind of cute for awhile, but has now gotten to the point where it's shading too much of the back yard. Darn thing is almost 6" diameter and is going to need the chain saw. Good grief, the avocado. Big old sucker. It was an old tree when I bought this place in 1980. Now it's about 2 ft diameter and 30 feet tall -- not something I really prune so much as just get up there and hack off parts of it that are overhanging the garage and shedding leaves that dam up the gutters.
I'm almost breaking even today. Sold three positions (BWLRF, CCCL, CSCO) this morning and bought VOD -- just changes in the screen that I use most.
Today that screen is pulling DROOY, TSN, SPA, CKH, XRTX, GILT, GME, JGBO, FLXS, VOD. I don't own GME, JGBO, or FLXS, but own the rest. Have below-market orders in for GME and FLXS, if they catch, fine, if not, still fine. I'm skipping JGBO since I don't really understand what this is all about:

LAIYANG, China, Jan. 21, 2011 /PRNewswire via COMTEX/ -- Jiangbo Pharmaceuticals, Inc. (JGBO, Trade ) ("Jiangbo Pharmaceuticals" or the "Company"), a pharmaceutical company with its principal operations in the People's Republic of China, today announced that it has reached a settlement with the holder of its November 2007 Debenture and with the holders of its May 2008 Notes under which the Company has agreed to issue to such holders a total of 886,277 shares of its common stock as a payment for all delinquent interest and associated penalties with respect to its November 2007 Debenture and May 2008 Notes. As part of the settlement, the holders of its November 2007 Debenture and May 2008 Notes have agreed to waive events of default that occurred as a result of the Company's failure to make timely payments on interest due on November 30, 2009, on May 30, 2010 and on November 30, 2010. Additionally, the holder of its November 2007 Debenture has agreed to extend the due date on the November 2007 Debenture to February 28, 2011.

"Consummation of this settlement brings the Company current on its November 2007 Debenture and May 2008 Notes. We thank our debenture and note holders for their continued support of Jiangbo Pharmaceuticals as we execute on our growth strategy in 2011," said Mr. Linxian Jin, the Company's Chief Executive Officer.

It looks to me like financing problems that they've only been able to shove out into February.

[blackdiamond]

Thanks a bunch for all the replies

[blackcard]

For a second or two I thought I had just posted and gone senile. LOL I like your screen name better than mine, wish I had thought of it first

[safeharbor37]

1] [fund A balance x expense ratio] = expense [sum]
2] Repeat for funds B, C, D, etc. then:
3] sum total balances and sum expenses then:
4] divide sum of expenses by sum of balances = expense ratio of total portfolio.
{Problem: how do you account for front and rear load?
Front or rear load: For fund balance substitute balance minus % of load. [balance - (balance x percent load)]}
B = balance
% = percent
a,b,c,d, etc. = fund name
[% expressed as decimal]
Ba + Bb + Bc, Bd, etc.....= sum of balances [SB]
and %a + %b + %c + 5d, etc. = sum of expenses [S%B]
S%B / SB = expense ratio of total balance