Is it worth buying an global fund if the expense ratio is .82

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Fam4fi
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Joined: Sun Jan 28, 2018 3:59 pm

Is it worth buying an global fund if the expense ratio is .82

Post by Fam4fi » Wed Jan 09, 2019 4:06 pm

Hello,
In my 403b account I do not have many options for funds. For years I have just bought the vanguard 500,midcap and small cap indexes offered in the percentages to mimic the total stock market fund. Vanguard believes international stocks should beat out domestic stocks for the next decade by 1 to 2 percent I believe. The only international fund available in my plan is an oakmark international fund but it has an expense ratio of .82. Any thoughts on if it is worth it to buy the fund to achieve the international diversification, or is it too high an expense ratio to bother? Thanks for any thoughts. I have bought international in my roth in the past to try to get some international diversification but because of the contribution limits I a! HEavily overweighted in domestic if the goal is a 60/40 to 50/50 split between the domestic and international. Thanks

retiredjg
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Re: Is it worth buying an global fund if the expense ratio is .82

Post by retiredjg » Wed Jan 09, 2019 4:19 pm

I would put the international allocation into Roth IRA. If it all won't fit, just how much would you have to put into the 403b? Putting 5% of your portfolio into a fund that costs .82% is no big deal.

Do you have a taxable account? And other IRAs? Would you consider holding just 30% of your stocks in international instead of 40% or 50%?

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Blueskies123
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Re: Is it worth buying an global fund if the expense ratio is .82

Post by Blueskies123 » Wed Jan 09, 2019 4:25 pm

Do you have any other accounts that have money you could move into a low-cost international ETF or fund? The fund you mentioned has done well in the past but had a bad 2018 vs the benchmark.

Rupert
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Re: Is it worth buying an global fund if the expense ratio is .82

Post by Rupert » Wed Jan 09, 2019 4:26 pm

I would hold international in Roth and/or a taxable account rather than invest in that fund.

JBTX
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Re: Is it worth buying an global fund if the expense ratio is .82

Post by JBTX » Wed Jan 09, 2019 4:38 pm

http://quotes.morningstar.com/chart/fun ... ture=en_US

Historically that fund has done well vs a total international index, but in 2018 it got killed vs the index.

They tend to be value oriented, and have a heavier presence than average for Europe, which probably accounts for the poor 2018 performance.

I would still include it, I'd probably just underweight it somewhat. If you wanted to go 30% international, maybe I'd put 20% in this fund. Or else put international in your Roth IRA or elsewhere if you can.

http://portfolios.morningstar.com/fund/ ... ture=en-US

Valuethinker
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Re: Is it worth buying an global fund if the expense ratio is .82

Post by Valuethinker » Thu Jan 10, 2019 12:35 pm

Fam4fi wrote:
Wed Jan 09, 2019 4:06 pm
Hello,
In my 403b account I do not have many options for funds. For years I have just bought the vanguard 500,midcap and small cap indexes offered in the percentages to mimic the total stock market fund. Vanguard believes international stocks should beat out domestic stocks for the next decade by 1 to 2 percent I believe. The only international fund available in my plan is an oakmark international fund but it has an expense ratio of .82. Any thoughts on if it is worth it to buy the fund to achieve the international diversification, or is it too high an expense ratio to bother? Thanks for any thoughts. I have bought international in my roth in the past to try to get some international diversification but because of the contribution limits I a! HEavily overweighted in domestic if the goal is a 60/40 to 50/50 split between the domestic and international. Thanks
The Vanguard data says that the US investor achieved the best risk-return tradeoff with c. 30% in international equities ie 70/30 US/ non US.

Note that *any* international exposure lowered returns (depending on your sub period) compared with 100% US equities. But you would have had somewhat less volatility.

I think the Vanguard data also showed that anything under 20% probably had no real effect. Roughly speaking that's a 25% underweight. Thus if International outperforms by 5% pa next 5 years you lose c. (1+0.0125)^5 on your performance if at a neutral weight. That would be one heck of an outperformance.

(part of the gain from international diversification is the diversification gain - the returns are not 100% correlated - so I have oversimplified, but I am trying to give a feel for how much this matters).

Although I happen to believe International is "cheap" and US is "expensive" (mostly due to where the US tech stocks are) -- I am not US-based -- my underweight in the US the last 10 years has *really* hurt. The truth is we really can't trust any forecaster for market returns against any other - the vociferous debates we have about it here (occasionally quite uncivil) are basically a sign that (for a US investor) it probably does not matter that much.

Thus:

- don't worry about being more than 20% (ideally say 25%, but 20% is OK) of your equity portfolio in international stocks
- if you can engineer a 20% weighting and you have to use this fund, then do so

On $100k vs a good S&P 500 fund, it's costing you c. $720 pa (82 basis points v. say 10 basis points). Compounded from now until you expect to realize those assets, of course.

Topic Author
Fam4fi
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Re: Is it worth buying an global fund if the expense ratio is .82

Post by Fam4fi » Thu Jan 10, 2019 7:26 pm

Thank you so much for your reply. I appreciate the information and will apply it going forward.

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Fam4fi
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Re: Is it worth buying an global fund if the expense ratio is .82

Post by Fam4fi » Sat Jan 12, 2019 12:55 pm

Thanks for everyone's input. Sorry I didn't give all the info. I have a Roth with Vanguard and I have begun buying the international index fund in that account starting this year. I do not have a taxable account. I Max out my 403b so I will buy only what I need of the oakmark fund to get my weighting into an acceptable range. After that I will buy the vanguard total international index fund in my Roth and only what I need of the oakmark fund to keep my diversification in the target range. This should keep my expenses as low as possible. I appreciate the help working through this, this is truely an amazing community!

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Davinci
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Re: Is it worth buying an global fund if the expense ratio is .82

Post by Davinci » Sat Jan 12, 2019 1:08 pm

DW 401k plan is with Merril Lynch and it has horrible fund options. We put everything into a Global Equity Index Fund that follows this benchmark "MSCI ACWI IMI NR USD". The gross expense ratio is not bad at 0.06% but we pay some hefty account fees so I think with those we are close to 0.7. :oops:

Her primary job has excellent 403b/457b fund options so we max those now instead as she just floats infrequently at this other company with horrible funds so we will let what she already put grow in this fund, or transfer to 403b if she leaves. :beer
" Simplicity is the ultimate sophistication" Leonardo Da Vinci.

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