Calculate the Damage of Mutual Fund Expenses
Calculate the hard cash you pay to own a fund to determine whether its expenses are worth the price.
Mutual funds with high expenses can put a serious hurt on your investment returns [Hack #59] . But how do you determine just how bad the damage is? Some web sites include estimated annual fees and compare a fund’s costs to the average for the fund category, but that’s just the beginning. The bottom line is how much more money would you have, if you didn’t have to pay those darned fees? If you’re trying to decide between several funds with similar investment philosophies, comparing your ending balance after several years, taking into account fund return and expenses, can help. You can use built-in Excel functions to calculate the potential cost of ownership and your bottom line return.
To calculate the true cost of mutual fund expenses, you need only a few items of data, shown in highlighted cells at the top of the spreadsheet in Figure 7-3. You must enter the value of your initial investment and the number of years you expect to own the fund. Whether you’re trying to decide which fund to buy or looking to replace a fund you already own, enter the number of dollars that you’re ready to invest as the initial investment (cell B2 in the example) to obtain the most accurate picture of costs and their effect. If your mutual funds are for retirement, you might hold them for decades. If you invest in funds to pay for your kids’ college education, ...