By JLP | November 9, 2006
Jeremy from Generation X Finance left the following comment on my last post:
That’s very true, and it is obvious that when all things considered are the same, no up front load and lower expenses will add up to a significant difference over time. But, what about a real world example, comparing two funds with the same investment objective, tracking past historical results?
For example, just quickly I went and looked at a few income funds I have heard of and know perform fairly well. Both are conservative allocations, both have a somewhat similar investment mix, both are 5-star morningstar rated and have ranked in the top 10 of income funds for the past 1, 3, 5 and 10 year periods.
I’m looking at:
No-load obviously on vanguard, and a 0.25 expense ratio. Franklin has a front-load of 4.25% and 0.65 expense ratio. Looking at the past 10 years:
3-Year Annualized 11.99
5-Year Annualized 11.64
10-Yr Annualized 9.52
3-Year Annualized 8.45
5-Year Annualized 6.72
10-Yr Annualized 8.66
Now, these are total returns, not counting the loads/expenses, but in comparing two of the top funds with the same investment objective, in this case would the load and higher expense ratio be more beneficial in the long run?
I don’t know, I’m at work and don’t have the time to calculate anything, but could you plug these numbers into your spreadsheet and see how they compare JLP? I’m curious to see how it works out when comparing them with say a 5 and 10 year annualized return for these specific funds.
Here are the results using the numbers provided above:
As you can see, the Franklin Templeton Income Fund SMOKED the Vanguard Wellesley Income Fund for both time-periods. What does this show us?