A little change in a physician's portfolio, utilizing the predictive power of expense ratios, can make a big difference in his future wealth.
I got a new physician client recently. The first step I took was to totally redo his portfolio. His old portfolio looked something like this.
Fund Symbol / Expense
YAFFX / 1.26 percent
UMBWX / 0.99 percent
TWCGX / 0.97 percent
SGRKX / 0.96 percent
SCETX /1.20 percent
RYTFX / 1.39 percent
PRRDX / 0.85 percent
ODMAX / 1.36 percent
OAKIX / 1.06 percent
OAKEX / 1.41 percent
AEMGX / 1.31 percent
Altogether there were 39 funds in his portfolio. I skipped over a bunch in the list above, but anybody who has read my blog for any period of time should be nearly shouting out what’s wrong with this portfolio.
These Fund Expenses are Too High
Russell Kinnel, Morningstar's director of mutual fund research, published a study in August 2012 entitled, "How Expense Ratios and Star Ratings Predict Success." The results show that expense ratios are the better predictors. Quoting Kinnel: "If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds."
So here are the funds I replaced his portfolio with:
DFQTX / 0.22 percent
DFTWX / 0.49 percent
DFREX / 0.18 percent
VBTIX / 0.07 percent
I reduced his average fund expense from 1.1 percent to 0.24 percent, a saving of 0.86 percent a year. This is nothing to sneer at. Ten years from now, my client will be 8.6 percent wealthier and 20 years from now, he will be at least 17 percent wealthier just by cutting his investment costs.
Talk to your advisor about investment expense.