Comparing Active and Passive Funds
The purpose of this blog is to document what fee’s can look like in a 20 year investment. This is using a hypothetical Active fund with a 5.5% Front Load.
Source for calculations was the following website https://www.nerdwallet.com/article/investing/mutual-fund-calculator
The below table is showing a fund that actually beat the S&P 500. As you can see the active fund did beat the S&P500 Index fund. And it utilized approximately $23,000 more in fees to do so.
Active-better
| Index | Active | |
|---|---|---|
| Initial Investment | $10,000 | $10,000 |
| Time Period in years | 20 | 20 |
| Front Load | 0.00% | 5.50% |
| Assumed Return | 14.79% | 16.74% |
| E/R | 0.04% | 0.83% |
| Actual Return minus E/R | 14.75% | 15.91% |
| Initial minus Load | $10,000 | $9,450 |
| End Date Value | $157,790.60 | $208,845.72 |
| Fees | $1,096.05 | $24,241.53 |
| Winning Difference Value | $55,1055.12 |
The following is showing when both the active and the S&P 500 Index return the same result. Even if the results were the same return, in the end the lower cost load free index returns an additional $28,823.00. And it does it for approximately $12,000 less of fees. Over a long time line fees and front loading can make a big difference. Especially if it does not beat the index.
Same-Return
| Index | Active | |
|---|---|---|
| Initial Investment | $10,000 | $10,000 |
| Time Period in years | 20 | 20 |
| Front Load | 0.00% | 5.50% |
| Assumed Return | 14.79% | 14.79% |
| E/R | 0.04% | 0.83% |
| Actual Return minus E/R | 14.75% | 13.96% |
| Initial minus Load | $10,000 | $9,450 |
| End Date Value | $157,790.60 | $128,967.60 |
| Fees | $822.72 | $20,144.51 |
| Winning Difference Value | $28,823.00 |