Portfolio growth - Edward Jones vs Vanguard Target 2045

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Inv3st0r
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Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by Inv3st0r » Tue Apr 25, 2017 12:54 pm

Thanks to Bogleheads I was able to convince a relative to stop contributing to Edward Jones an open a Vanguard Roth IRA 2045 Target Fund. She was hesitant and decided for now to add future funds to Vanguard and leave her existing funds at Edward Jones. These are the current funds she is invested in:
25 % - American Funds AMCAP Fund Class C AMPCX ER- 1.48%
23 % - Franklin Mutual Global Discovery Fund Class C TEDSX ER 1.99%
13% - Invesco Diversified Dividend Fund Class C ERLCEVX ER 1.57%
31% - MFS Research International Fund Class C MRICX ER 1.87%
8% -Oppenheimer Global Opportunities C OGICX ER 1.94%

I have read quite a bit on these forums and a couple of the recommended books. I realize past performance isn't indicative of future performance and that passively managed low expense ratio funds generally perform better, but when I look at the hypothetical growth of 10,000 some of her funds seem to have done quite well over time, especially OGICX. Does hypothetical growth factor in expense ratios? Would her EJ portfolio have outperformed the Vanguard 2045 over the past 5 or ten years or am I missing something?

david
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by david » Tue Apr 25, 2017 1:44 pm

The Vanguard portfolio would have outperformed in both scenarios.

Based on the results from portfolio visualizer:
A five year period would have turned 10k into 17,529 (vs 16,765 for the EJ portfolio)

A ten year period would have turned 10k into 17,741 (vs 16,172 for the EJ portfolio)

For both I had dividends set to reinvest with an annual re-balancing (though the Vanguard Target Date fund beat it also without rebalancing). In the future, noone knows which portfolio will certainly outperform. Under Bogle's cost-matters hypothesis, however, I'd guess the vanguard portfolio will likely continue to do better. However, as you may know, the target retirement fund will continue to get less risky.

Inv3st0r
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by Inv3st0r » Tue Apr 25, 2017 2:44 pm

Thank you for the detailed answer. The portfolio visualizer is a great tool.

deltaneutral83
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by deltaneutral83 » Tue Apr 25, 2017 2:54 pm

david wrote:The Vanguard portfolio would have outperformed in both scenarios.

For both I had dividends set to reinvest with an annual re-balancing (though the Vanguard Target Date fund beat it also without rebalancing). In the future, noone knows which portfolio will certainly outperform. Under Bogle's cost-matters hypothesis, however, I'd guess the vanguard portfolio will likely continue to do better. However, as you may know, the target retirement fund will continue to get less risky.
Did your scenario account for the Expense Ratios in the EJ portfolio, I assume it did for Vanguard funds?

Nate79
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by Nate79 » Tue Apr 25, 2017 3:35 pm

deltaneutral83 wrote:
david wrote:The Vanguard portfolio would have outperformed in both scenarios.

For both I had dividends set to reinvest with an annual re-balancing (though the Vanguard Target Date fund beat it also without rebalancing). In the future, noone knows which portfolio will certainly outperform. Under Bogle's cost-matters hypothesis, however, I'd guess the vanguard portfolio will likely continue to do better. However, as you may know, the target retirement fund will continue to get less risky.
Did your scenario account for the Expense Ratios in the EJ portfolio, I assume it did for Vanguard funds?
Expense ratios are part of the fund return automatically. You do not pay the ER separately. However if there were front end loads that makes the return much worse. I'm not sure if that was taken into account but probably not.

deltaneutral83
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by deltaneutral83 » Tue Apr 25, 2017 4:05 pm

Nate79 wrote:
Expense ratios are part of the fund return automatically. You do not pay the ER separately. However if there were front end loads that makes the return much worse. I'm not sure if that was taken into account but probably not.
Thanks for the response. On a similar note, I have high ER's inside my 401k. When comparing my funds to the peer average, how do I know what ER the peer average is using? Are they also using high ER's, or is it some sort of blend, or something different altogether?

Example, my "500 fund" obviously uses the S&P as it's benchmark and then it uses Morningstar large peer blend peer group. My 500 fund obviously isn't going to beat the S&P over any meaningful time frame because it's nearly identical to the S&P and I have an above 1% ER and I assume the S&P itself has no ER as it's using the actual S&P, not an S&P fund/etf. Similar situation with the Morningstar peer group. Are they using discounted ETFs that you could get on the market for low ER's or are they using some type of average ER.
Last edited by deltaneutral83 on Tue Apr 25, 2017 4:12 pm, edited 2 times in total.

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hoppy08520
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by hoppy08520 » Tue Apr 25, 2017 4:08 pm

Be sure to account for EJ advisor fees on top of the fund expense ratios. The fee is probably a percentage of assets under management (AUM) which is likely around 1%. EJ might even charge a "convenience fee" to reinvest dividends.

TX_Man
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by TX_Man » Tue Apr 25, 2017 4:14 pm

It appears some of the funds you listed are class C mutual funds. If I'm not mistaken they may carry a back end load.

NotWhoYouThink
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by NotWhoYouThink » Tue Apr 25, 2017 4:30 pm

Does her advisor have authority to buy and sell in her account? How often has that been done? Is this the portfolio that she has had for the past 5 years, or has there been some trading going on?

Sometimes advisors will sell what's in the portfolio and buy what's been doing well lately. So any time you look back at how the funds you currently own have done, it turns out they have done great! But you might not have owned those funds when they were doing great - you may have owned funds that were doing great 5 years ago. Your actual account may not have done as well as the funds currently in your account have done.

Anyway, small steps. New money someplace besides EJ.

Inv3st0r
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by Inv3st0r » Tue Apr 25, 2017 8:11 pm

She started investing in 2014 and some of her funds did have front end loads. I couldn't find load fees listed on her statements. Shouldn't they appear under fees paid? There were a few trades in 2015 and her advisor recently switched her from OPECX to OGICX (which has a backend load as well). I have run many scenarios using the Portfolio Visualizer that David pointed out to me and Vanguard comes out ahead every time. It is hard to be accurate because she did an IRA to Roth conversion and split the money over two years but it is close enough to see that Vanguard is clearly the better choice especially considering the only fees calculated in were the expense ratios.

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grabiner
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by grabiner » Wed Apr 26, 2017 10:33 pm

TX_Man wrote:It appears some of the funds you listed are class C mutual funds. If I'm not mistaken they may carry a back end load.
C shares don't usually have a back-end load unless sold within a year; rather, they have a 1% 12b(1) fee charged every year.
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BL
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by BL » Thu Apr 27, 2017 1:14 am

Class C funds give a 1% 12b-1 kickback from the ER to the broker, so they make up the lack of a front load in just a few years, but make the extra 1% from now on. (Class A shares have a front load and only kickback 1/4%.) If she has no Class A shares now and knows she had a front load when she bought them, that means they sold her original and bought these Class C ones that pay 4 times the kickback. That is a dirty trick because she wasted the front load to end up paying more forever in these expensive-ER funds. Class C funds are the bad class.

Hopefully when she has been at Vanguard she will see that low-ER funds are the way to go.

Will you get blamed when the market crashes? There is that possibility which is why many of us hold our tongues unless directly asked.

jadedfalcons
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by jadedfalcons » Thu Apr 27, 2017 5:07 am

You won't find front end load fees listed separately. The way those fees are handled is in the purchase price. For example, if paying the full load on American Funds, if a fund is trading at $10 on the day it was purchased, the purchase price would be $10.575.

Inv3st0r
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by Inv3st0r » Fri Apr 28, 2017 5:25 pm

I looked through her old statements and her adviser has not made a lot of trades. I feel confident she will be much happier with Vanguard. I appreciate all the help everyone has given me on this forum.

Mr.BB
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Re: Portfolio growth - Edward Jones vs Vanguard Target 2045

Post by Mr.BB » Fri Apr 28, 2017 7:11 pm

hoppy08520 wrote:Be sure to account for EJ advisor fees on top of the fund expense ratios. The fee is probably a percentage of assets under management (AUM) which is likely around 1%. EJ might even charge a "convenience fee" to reinvest dividends.
I think they charge you a 2% fee for dividend reinvestment.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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