January 23, 2014 at 2:19 pm #9678
Hello everyone I hoping I can get some feedback on a question I have. First and foremost thank you TS Paul for all the work you have put into the site and for educating the masses. I’ve been implementing the business cycle theory of investing since October and I have seen significant gains in both my TSP and individual investment accts. I have spread the word to others and hopefully they can walk away from it with more than just monetary gains as I have. Question, when choosing an index fund, how do I know which fund is going to give me the biggest bang for the buck. Let’s say I have 35K in an IRA which mirrors the TSP S fund. However I like the low cost Vanguard VSMAX index fund (expense ratio 0.10%) but shares are currently $53.52 with $44.2 billion in assets. Let’s say my current fund has an expense ratio 0.65 before, 0.50 after/ $17.92 a share and $615.12m in assets. It seems to me that a common sense approach would be to think “well you get more shares for your money with the cheaper fund but am I missing something here”? Any feedback on this would be greatly appreciated. Thank you.February 1, 2014 at 5:50 pm #9785
If I’m understanding the question correctly, my understanding is that two mutual funds tracking the same index will hold the exact same stocks and in the same proportion. Those stocks will have the same value whether they are held by the Vanguard fund or another fund – there is no premium or discount based on which company creates the fund. The difference in price between shares of one index fund and other simply reflects how the different companies have chosen to break up ownership interests. But at the end of the day, owning $35,000 of the Vanguard fund will result in your owning the exact same amount of the underlying securities as $35,000 invested in any other fund tracking the same index, whether you own 1 share worth $35k or 35,000 shares worth $1 each.
So all else being equal, saving .55% in expenses annually would save about $192 in expenses and I would go with the Vanguard fund.
The TSP Allocation Guide www.TSPallocation.comFebruary 6, 2014 at 10:57 am #9865
Thanks, that’s what I was looking for.
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