High expense ratio funds - are they worth it?

Question

I have a mix of high expense (1.5%) mutual funds and low expense (0.2%) index funds. Everyone talks about getting out of high expense funds because it eats into your gains (which is true). However, my observation with the funds I have is that since they are actively managed, they give me a better average annual return than an index fund. Hence my hesitation to move out of these and this question. Anyone have thoughts on this in case I am missing anything.

Here are the funds I have and their expense ratios QFVOX - 1.52% SEVAX - 1.42% AKREX - 1.34%

Answer 1

Over the past five years, QFVOX has returned 13.67%, compared to the index fund SPY that has returned 50.39%. SEVAX has lost 23.96%. AKREX has returned 81.82%. In two of your three examples, you would have done much better in an index fund with a very low expense ratio as suggested.

While one can never, as you see, make a generalization, in almost every case, most investors will do better, and often much better, with an index fund with a low expense ratio.

My source was Google Finance.

Answer 2

In almost every circumstance high expense ratios are a bad idea.

I would say every circumstance, but I don't want backlash from anyone.

There are many other investment companies out there that offer mutual funds for FAR less than 1.5% ratio. I couldn't even imagine paying a 1% expense ratio for a mutual fund.

Vanguard offers mutual funds that are significantly lower, on average, than the industry. Certainly MUCH lower than 1.5%, but then again I'm not sure what mutual funds you have, stock, bonds, etc.

Here is a list of all Vanguard's mutual funds. I honestly like the company a lot, many people haven't heard of them because they don't spend nearly as much money on advertisements or a flashy website - but they have extremely low expense ratios. You can buy into many of their mutual funds with a 0.10%-0.20% expense ratio. Some are higher, but certainly not even close to 1.5%. I don't believe any of them are even half of that.

Also, if you were referring to ETF's when you mentioned Index Fund (assuming that since you have ETFs in your tag), then 0.20% for ETF's is steep, check out some identical ETFs on Vanguard.

I am not a Vanguard employee soliciting their service to you. I'm just trying to pass on good information to another investor. I believe you can buy vanguard funds through other investment companies, like Fidelity, for a good price, but I prefer to go through them.

Answer 3

The 10 year comparison between your fund and the S&P 500 -

I'd say more, but not sure it's needed.