Comments on: Review: Common Sense on Mutual Funds

By: Michael

Michael — Mon, 03 Dec 2007 14:49:42 +0000

@Fuji

Here is a list of “baskets” for your “eggs.” Each fund met these requirements:
1. Minimum initial investment under $5,000.
2. Open to new retail investors.
3. “Audited net expense ratio” under .40%

Note: the UA fund charges $10/year and 0.05% redemption fees for accounts under $10,000. I have not investigated the other funds.

DWS Eq 500 Index S $2500 0.30%
Legg Mason P S&P 500 D $0 0.39%
RiverSource 500 Index E $2000 0.38%
Schwab S&P 500 In Inv $100 0.36%
T. Rowe Price Eq Idx 500 $2500 0.35%
United Assoc S&P500 II $1000 0.16%
Vanguard 500 Index $3000 0.18%

By: Red

Red — Fri, 30 Nov 2007 20:39:07 +0000

Very interesting looking book, I’ll have to add this to my library queue.

By: Michael

Michael — Fri, 30 Nov 2007 17:39:25 +0000

I’ve been reading-up on expense ratios recently, and it appears that you cannot simply subtract the expense ratio from the annual return as shown under Chapter 14 above. Basically, the formula used above is

end value = initial*(1+ROR-er)^years

but I believe that it should be

end value = initial*((1+ROR)*(1-er))^years

where er is the expense ratio.

On the page http://www.oreilly.com/pub/h/1889 , Example 3 and the accompanying text explain (briefly) why to use the second formula (which is also what the SEC’s expense calculator seems to use). The difference between the two calculations can be significant, particularly for higher expense ratios.

I’m curious if the book says (or folks have seen) differently.

By: Fuji

Fuji — Fri, 30 Nov 2007 16:49:45 +0000

Trent, is all your money with Vanguard? I recently read advice not to invest all your money with one firm – all your eggs in one basket so to speak. What is your opinion on that?
Thanks. :)

By: Peggy

Peggy — Fri, 30 Nov 2007 15:53:37 +0000

Nitpicking — it’s REVERSION to the mean, not REVISION to the mean.

The hubby and I are about to sit down for our annual financial review and strategy session, and I’ll be sure to suggest this as one of the books we read as we refine our plans and such. Thanks!

By: Plan Your Escape

Plan Your Escape — Fri, 30 Nov 2007 15:33:10 +0000

Thanks for the very thorough review Trent. Congratulations on summarizing 400+ pages of reading! Thanks.

Peter

By: Philip

Philip — Fri, 30 Nov 2007 15:13:05 +0000

Post messed up I guess:

P/E less than 10 is a value stock, not growth if I’m not mistaken.

This was a great review about a great man and a great book. I too invest with Vanguard.

I would guess this book is older so it doesn’t mention the Target Retirement Funds. These are perfect for 90% of the population and would make a great blog entry.

By: Philip

Philip — Fri, 30 Nov 2007 15:08:23 +0000

P/E

By: Tom

Tom — Fri, 30 Nov 2007 14:59:52 +0000

Hello. I’ve been reading your blog for a few weeks and thoroughly enjoying it–really good stuff. I’m glad to see you’ve reviewed and enjoyed “Commonsense on Mutual Funds”. I’ve got it on the bookshelf beside me here at work and I *love* this book. Everyone should read it. Very thorough and makes a great case for the indexing way of investing. Keep up the great work and thanks for all of the great articles!