No. of Recommendations: 1
18% * (1 - your tax rate is)

Apologies! Math typo. Should be:

18% / (1 - your tax rate is)


Fixing this also gives me the opportunity to offer some advice on how to compare the funds you own now to the overall market returns to see if you're getting a good deal. What I like to do is compare stock or fund returns to the S&P 500 index. I do this because I can get the S&P 500 index return for free. "Free" means with no work and with no to almost no fees. Unless a stock or fund or fund manager like Edward Jones can beat that, it makes sense to just invest in the S&P 500 index for the portion of my money I want in stocks.

One way you can start doing this is by going to Yahoo Finance:

https://finance.yahoo.com/

*Type in the ticker of your mutual fund at the very top to get to the page with your mutual fund's details.

*Click "Full Screen" on the chart.

*Change the date range to "Max," and change the Interval to a month or a year to smooth the graph out.

*Click on "Comparison" and add the ticker of your mutual fund and see how they compare.


This is a nice visual way to do it. You can also go to sites like Morningstar and look your fund up to get five and ten year returns. For example, here's the performance page for Fairholme Fund (FAIRX), which has had a rough go the last few years:

http://performance.morningstar.com/fund/performance-return.a...


Don't worry much about the one year returns. Anyone can beat or lose to the market in a year. You're more interested in the longer term returns. Is your fund manager beating the index return which you can get for free? If not, you have to ask yourself why you're paying extra for this.

Just removing 1% in fees over ten years creates a difference like this when comparing a 9% and a 10% return:


9% return: $10,000 * 1.09^10 = $23,673

10% return: $10,000 * 1.10^10 = $25,937

That's a $2,264 difference, which you earned by doing nothing other than moving money from a fund that was trailing the index on average by 1% due to fees to an index fund that charges no or very little fees.


Mike
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