Understanding impact of expense ratios

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Topic Author
investment guy
Posts: 93
Joined: Sat Mar 27, 2021 2:00 pm

Understanding impact of expense ratios

Hi. Check my math please.

I have \$332,000. In a mutual fund at .41% expense ratio. I have been advised that the expense ratio for this fund has been reduced to .36%

.41 minus .36 = .05

\$332,000 x .05 = \$16,600.

Is that correct? The reduction in the expense ratio will save \$16,600. in fees annually? I’m thinking that I have a decimal point in the wrong place.

The fund is DODIX, now changing to DOXIX.

Thanks!
Stinky
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Location: Sweet Home Alabama

Re: Understanding impact of expense ratios

investment guy wrote: Wed Nov 23, 2022 6:19 pm Hi. Check my math please.

I have \$332,000. In a mutual fund at .41% expense ratio. I have been advised that the expense ratio for this fund has been reduced to .36%

.41 minus .36 = .05

\$332,000 x .05 = \$16,600.

Is that correct? The reduction in the expense ratio will save \$16,600. in fees annually? I’m thinking that I have a decimal point in the wrong place.

The fund is DODIX, now changing to DOXIX.

Thanks!
Yea, you’re off two decimal points.

The expense ratio is going from 0.41% to 0.36%. Or from .0041 to .0036.

Reduction is 0.05%, or .0005. That works out to be \$166 per year.

Sorry to be the bearer of bad news.
Retired life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
Geologist
Posts: 2027
Joined: Fri Jan 02, 2009 7:35 pm

Re: Understanding impact of expense ratios

I'm afraid you have calculated incorrectly.

0.41-0.36 does equal 0.05 but this is percent (%), so you have to divide by 100 to calculate the expense in dollars.

So the saving is \$166.
jebmke
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Location: Delmarva Peninsula

Re: Understanding impact of expense ratios

\$166.00
When you discover that you are riding a dead horse, the best strategy is to dismount.
coachd50
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Re: Understanding impact of expense ratios

investment guy wrote: Wed Nov 23, 2022 6:19 pm Hi. Check my math please.

I have \$332,000. In a mutual fund at .41% expense ratio. I have been advised that the expense ratio for this fund has been reduced to .36%

.41 minus .36 = .05

\$332,000 x .05 = \$16,600.

Is that correct? The reduction in the expense ratio will save \$16,600. in fees annually? I’m thinking that I have a decimal point in the wrong place.

The fund is DODIX, now changing to DOXIX.

Thanks!
While not an expert on expense ration mechanics and fees-- I will say that there is a significant difference between .41% .36% and .05% and .41 (which is 41%) .36 (36%) and .05 (5%).
I believe the calculation you are looking for is \$332,000 x .0005 (.05%) which is \$166 bucks.
Topic Author
investment guy
Posts: 93
Joined: Sat Mar 27, 2021 2:00 pm

Re: Understanding impact of expense ratios

Thanks! I knew I “had to be” wrong, actually very wrong. Happy Thanksgiving, appreciate the quick replies.
CyclingDuo
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Re: Understanding impact of expense ratios

investment guy wrote: Wed Nov 23, 2022 6:27 pm Thanks! I knew I “had to be” wrong, actually very wrong. Happy Thanksgiving, appreciate the quick replies.
On the other hand, if you put it in a lower cost fund such as a total stock market or S&P 500 fund, then the savings would be...

•Current ER of .41: \$1,360.20 annual cost
•New ER of .36: \$1,195.20 annual cost
•Low Cost ER fee of .04: \$132.80 annual cost

Switching to such a lower cost fund could be saving you \$1,227.40 per year in fees under your current fee of .41, or \$1,062.40 under your new fee of .36.

It does add up over the decades...

That's my Thanskgiving Food for Thought.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
ruralavalon
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Location: Illinois

Re: Understanding impact of expense ratios

CyclingDuo wrote: Thu Nov 24, 2022 9:23 am
investment guy wrote: Wed Nov 23, 2022 6:27 pm Thanks! I knew I “had to be” wrong, actually very wrong. Happy Thanksgiving, appreciate the quick replies.
On the other hand, if you put it in a lower cost fund such as a total stock market or S&P 500 fund, then the savings would be...

•Current ER of .41: \$1,360.20 annual cost
•New ER of .36: \$1,195.20 annual cost
•Low Cost ER fee of .04: \$132.80 annual cost

Switching to such a lower cost fund could be saving you \$1,227.40 per year in fees under your current fee of .41, or \$1,062.40 under your new fee of .36.

It does add up over the decades...

That's my Thanskgiving Food for Thought.

CyclingDuo
On the other hand investment guy my need a bond fund not a stock fund to achieve the desired asset allocation.

Dodge & Cox Income Fund Class X (DOXIX).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
retiringwhen
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Re: Understanding impact of expense ratios

ruralavalon wrote: Thu Nov 24, 2022 11:48 am On the other hand investment guy my need a bond fund not a stock fund to achieve the desired asset allocation.

Dodge & Cox Income Fund Class X (DOXIX).
VBTLX @ 0.05% ER and total cost of \$166/year for 87% annual reduction in fees paid.
CyclingDuo
Posts: 5140
Joined: Fri Jan 06, 2017 9:07 am

Re: Understanding impact of expense ratios

ruralavalon wrote: Thu Nov 24, 2022 11:48 am
CyclingDuo wrote: Thu Nov 24, 2022 9:23 am
investment guy wrote: Wed Nov 23, 2022 6:27 pm Thanks! I knew I “had to be” wrong, actually very wrong. Happy Thanksgiving, appreciate the quick replies.
On the other hand, if you put it in a lower cost fund such as a total stock market or S&P 500 fund, then the savings would be...

•Current ER of .41: \$1,360.20 annual cost
•New ER of .36: \$1,195.20 annual cost
•Low Cost ER fee of .04: \$132.80 annual cost

Switching to such a lower cost fund could be saving you \$1,227.40 per year in fees under your current fee of .41, or \$1,062.40 under your new fee of .36.

It does add up over the decades...

That's my Thanskgiving Food for Thought.

CyclingDuo
On the other hand investment guy my need a bond fund not a stock fund to achieve the desired asset allocation.

Dodge & Cox Income Fund Class X (DOXIX).
Ah, good catch. I didn't bother to look up the mutual find ticker symbol. BND or FXNAX for .03 would save some annual ER fee expense.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
ruralavalon
Posts: 24091
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Location: Illinois

Re: Understanding impact of expense ratios

CyclingDuo wrote: Thu Nov 24, 2022 3:20 pm
ruralavalon wrote: Thu Nov 24, 2022 11:48 am
CyclingDuo wrote: Thu Nov 24, 2022 9:23 am
investment guy wrote: Wed Nov 23, 2022 6:27 pm Thanks! I knew I “had to be” wrong, actually very wrong. Happy Thanksgiving, appreciate the quick replies.
On the other hand, if you put it in a lower cost fund such as a total stock market or S&P 500 fund, then the savings would be...

•Current ER of .41: \$1,360.20 annual cost
•New ER of .36: \$1,195.20 annual cost
•Low Cost ER fee of .04: \$132.80 annual cost

Switching to such a lower cost fund could be saving you \$1,227.40 per year in fees under your current fee of .41, or \$1,062.40 under your new fee of .36.

It does add up over the decades...

That's my Thanskgiving Food for Thought.

CyclingDuo
On the other hand investment guy my need a bond fund not a stock fund to achieve the desired asset allocation.

Dodge & Cox Income Fund Class X (DOXIX).
Ah, good catch. I didn't bother to look up the mutual find ticker symbol. BND or FXNAX for .03 would save some annual ER fee expense.

CyclingDuo
But the expense ratios are still not the entire story. We don't know if a total bond market index fund is available in this account.

Also in spite of the higher expense ratio, over 33 years Dodge & Cox Income Fund has had superior performance to a total bond market index fund. Portfolio Visualizer,1989-2022. Historically over 33 years Dodge & Cox Income Fund has had a higher dollar return, a higher Compound Annual Growth Rate (CAGR), a similar standard deviation (risk), and a higher risk-adjusted return (Sortino Ratio).

Finally year to date (YTD) Dodge & Cox Income Fund has had a smaller loss than a total bond market index fund.

I used the oldest share classes to get the longest period for comparison.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
investment guy
Posts: 93
Joined: Sat Mar 27, 2021 2:00 pm

Re: Understanding impact of expense ratios

Thanks everyone. I have held Dodge & Cox Income Fund (DODIX) for many years and have been very happy with the long term performance.
Jeepergeo
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Joined: Sun Dec 20, 2020 2:33 pm

Re: Understanding impact of expense ratios

Is your mutual fund in a 401(k) plan? If so, watch out for additional fees that the plan passes along to participants in addition to the fund fees. Plan managers like to call these additional fees "advisory fees" and "administrative fees" that together with the fund fees can make the plan a very expensive place to invest.

Hats off to plan sponsors that absorb the advisory fees and administrative fees AND offer mutual funds with low fees.

The plan at my workplace is very expensive and the fees that participants pay are very high. At least now, after considerable discussions with the plan sponsor, we now have a few low cost funds available mixed in with mostly expensive funds. The plan administrator, ML, is worthless when it comes to answering participant questions about total fees and providing the ability of participants to use the website to look up the fees paid in the last year.... clearly ML does not want that information easy to look up. And I just laugh and shake my head at the thought of any plan participant taking seriously the plan's ML advisory services.
Abe
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Re: Understanding impact of expense ratios

Sorry for belaboring the point, but if you remember this rule, you will always get it right. To convert a percent to a decimal, move the decimal point 2 places to the left. To convert a decimal to a percent just do the opposite by moving the decimal point 2 places to the right.
Slow and steady wins the race.
hudson
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Re: Understanding impact of expense ratios

investment guy wrote: Fri Nov 25, 2022 1:54 pm Thanks everyone. I have held Dodge & Cox Income Fund (DODIX) for many years and have been very happy with the long term performance.
DODIX: https://www.dodgeandcox.com/individual- ... -fund.html
The high expense ratio and the high percentage of BBB bonds would give my heartburn.
The .0041 expense ratio X \$1M is \$4100 per year. That looks like a lot of dealer profit.
It has 28.7% BBB bonds...ouch.

Bottom Line: I would want an ER of .0003 and AAA/AA/A or better holdings.
ruralavalon
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Location: Illinois

Re: Understanding impact of expense ratios

hudson wrote: Sat Nov 26, 2022 9:35 am
investment guy wrote: Fri Nov 25, 2022 1:54 pm Thanks everyone. I have held Dodge & Cox Income Fund (DODIX) for many years and have been very happy with the long term performance.
DODIX: https://www.dodgeandcox.com/individual- ... -fund.html
The high expense ratio and the high percentage of BBB bonds would give my heartburn.
The .0041 expense ratio X \$1M is \$4100 per year. That looks like a lot of dealer profit.
It has 28.7% BBB bonds...ouch.

Bottom Line: I would want an ER of .0003 and AAA/AA/A or better holdings.
BBB bonds are investment-grade bonds. Dodge & Cox Income Fund is about 90% investment-grade bonds.

The expense ratio for Dodge & Cox Income Fund Class X (DOXIX) is 0.36%. The expense ratio is not "dealer profit", it is the expense of operating the mutual fund and does not contain a 12b1 fee.

Dodge & Cox Income Fund has had lower losses year to date (YTD), lower losses the last 12 months, and a standard deviation (volatility) about the same as total bond market.

I would have been thrilled to find Dodge & Cox Income Fund offered in my 401k plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
hudson
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Joined: Fri Apr 06, 2007 9:15 am

Re: Understanding impact of expense ratios

ruralavalon wrote: Sat Nov 26, 2022 12:04 pm
hudson wrote: Sat Nov 26, 2022 9:35 am
investment guy wrote: Fri Nov 25, 2022 1:54 pm Thanks everyone. I have held Dodge & Cox Income Fund (DODIX) for many years and have been very happy with the long term performance.
DODIX: https://www.dodgeandcox.com/individual- ... -fund.html
The high expense ratio and the high percentage of BBB bonds would give my heartburn.
The .0041 expense ratio X \$1M is \$4100 per year. That looks like a lot of dealer profit.
It has 28.7% BBB bonds...ouch.

Bottom Line: I would want an ER of .0003 and AAA/AA/A or better holdings.
BBB bonds are investment-grade bonds. Dodge & Cox Income Fund is about 90% investment-grade bonds.

The expense ratio for Dodge & Cox Income Fund Class X (DOXIX) is 0.36%. The expense ratio is not "dealer profit", it is the expense of operating the mutual fund and does not contain a 12b1 fee.

Dodge & Cox Income Fund has had lower losses year to date (YTD), lower losses the last 12 months, and a standard deviation (volatility) about the same as total bond market.

I would have been thrilled to find Dodge & Cox Income Fund offered in my 401k plan.
Isn't Dodge & Cox a for-profit company?
I humbly speculate that the company is making a profit on DOXIX.
The fund hold \$57 Billion of assets.
Expense ratio X assets....
.0036 X \$57B is over \$205 million. Does it cost that much to manage the fund?

Compare to Vanguard BND ETF

Vanguard BND...total bond .0003 X 268B is just over \$78M

DOXIX costs \$205M in expenses?
BND costs \$78M in expenses for an ETF four times larger
EdNorton
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Re: Understanding impact of expense ratios

How'd you pick you name? You sound like a non-investment guy.
Outside a dog, a book is man's best friend, inside a dog, it's too dark to read - Groucho
ruralavalon
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Location: Illinois

Re: Understanding impact of expense ratios

hudson wrote: Sun Nov 27, 2022 6:39 pm
ruralavalon wrote: Sat Nov 26, 2022 12:04 pm
hudson wrote: Sat Nov 26, 2022 9:35 am
investment guy wrote: Fri Nov 25, 2022 1:54 pm Thanks everyone. I have held Dodge & Cox Income Fund (DODIX) for many years and have been very happy with the long term performance.
DODIX: https://www.dodgeandcox.com/individual- ... -fund.html
The high expense ratio and the high percentage of BBB bonds would give my heartburn.
The .0041 expense ratio X \$1M is \$4100 per year. That looks like a lot of dealer profit.
It has 28.7% BBB bonds...ouch.

Bottom Line: I would want an ER of .0003 and AAA/AA/A or better holdings.
BBB bonds are investment-grade bonds. Dodge & Cox Income Fund is about 90% investment-grade bonds.

The expense ratio for Dodge & Cox Income Fund Class X (DOXIX) is 0.36%. The expense ratio is not "dealer profit", it is the expense of operating the mutual fund and does not contain a 12b1 fee.

Dodge & Cox Income Fund has had lower losses year to date (YTD), lower losses the last 12 months, and a standard deviation (volatility) about the same as total bond market.

I would have been thrilled to find Dodge & Cox Income Fund offered in my 401k plan.
Isn't Dodge & Cox a for-profit company?
I humbly speculate that the company is making a profit on DOXIX.
The fund hold \$57 Billion of assets.
Expense ratio X assets....
.0036 X \$57B is over \$205 million. Does it cost that much to manage the fund?

Compare to Vanguard BND ETF

Vanguard BND...total bond .0003 X 268B is just over \$78M

DOXIX costs \$205M in expenses?
BND costs \$78M in expenses for an ETF four times larger
Fidelity and Schwab are also for-profit fund companies.

Dodge & Cox is still an excellent fund company. "Dodge & Cox is a private partnership. Long ago, Vanguard founder Jack Bogle argued that, aside from his own company’s at-cost structure, partnerships were best suited to run mutual funds. As they need not generate annual cash flows to satisfy outside shareholders, partnerships can be patient, keeping their funds’ expenses modest and creating new funds only when ready." Morningstar, (9/6/2019), Be Thankful That You Don't Compete Against Vanguard.

"After reading this column, Morningstar’s Russ Kinnel informed me that Jack Bogle told him that Dodge & Cox was his favorite fund family. “My God, they’re boring,” said Bogle. You can’t ask for a higher fund-family compliment than that." Morningstar, (9/6/2019), Be Thankful That You Don't Compete Against Vanguard.

Morningstar, (1/28/2020), The Best Fund Companies and Their Ratings. Dodge & Cox (like Vanguard) is one of just five companies rated best in class.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
hudson
Posts: 5953
Joined: Fri Apr 06, 2007 9:15 am

Re: Understanding impact of expense ratios

Many thanks ruralavalon!
I didn't know that history.