weighted expense ratio calculation?
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weighted expense ratio calculation?
Is there a simple way to calculate weighted expense ratios of a portfolio?
For example, if one wanted to compare a target retirement fund with an expense ratio of 0.46% and a portfolio with:
25% fund A (0.06%)
51% fund B(0.02%)
15% fund C(0.03%)
9% fund D (0.04%)
For example, if one wanted to compare a target retirement fund with an expense ratio of 0.46% and a portfolio with:
25% fund A (0.06%)
51% fund B(0.02%)
15% fund C(0.03%)
9% fund D (0.04%)
Re: weighted expense ratio calculation?
25% can also be written as 0.25BooneDocks11 wrote: ↑Sat Aug 01, 2020 3:55 pm Is there a simple way to calculate weighted expense ratios of a portfolio?
For example, if one wanted to compare a target retirement fund with an expense ratio of 0.46% and a portfolio with:
25% fund A (0.06%)
51% fund B(0.02%)
15% fund C(0.03%)
9% fund D (0.04%)
You can calculate the weighted average as: 0.25*0.06 + 0.51*0.02 + 0.15*0.03 + 0.09*0.04
Since all the expense ratios are between 0.02% and 0.06%, the weighted average will also be between those numbers: so definitely much lower than your target date fund’s expense ratio of 0.46%
Best,
TxIn
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Re: weighted expense ratio calculation?
Sum the products of each fund percentage times their respective ER.
(.25 * .06) + (.51 * .02) + (.15 * .03) + (.09 * .04) = .0333%
Cheers
(.25 * .06) + (.51 * .02) + (.15 * .03) + (.09 * .04) = .0333%
Cheers
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- Rob Relyea
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Re: weighted expense ratio calculation?
I've just added weighted expense ratio calculation to bogle.tools/portfolio - a tool to help people compose Portfolio Review posts. (forum thread about bogle.tools/portfolio)
You can try it out with a sample portfolio here: https://bogle.tools/portfolio/topic/400371 (this is the portfolio from post topic #400371 - a portfolio I made $10K, since there were no amounts)
Above the "current retirement assets", it will show:
Weighted Expense Ratio: 0.041% or $3.96 per year
If you want to try it out with your own portfolio, navigate to http://bogle.tools/portfolio (or press Clear Portfolio button if you are using the sample portfolio). Once you navigate to https://bogle.tools/portfolio/retirement-assets - you can hand enter your accounts/investments...or you can import many different Custodians CSV file formats.
You can try it out with a sample portfolio here: https://bogle.tools/portfolio/topic/400371 (this is the portfolio from post topic #400371 - a portfolio I made $10K, since there were no amounts)
Above the "current retirement assets", it will show:
Weighted Expense Ratio: 0.041% or $3.96 per year
If you want to try it out with your own portfolio, navigate to http://bogle.tools/portfolio (or press Clear Portfolio button if you are using the sample portfolio). Once you navigate to https://bogle.tools/portfolio/retirement-assets - you can hand enter your accounts/investments...or you can import many different Custodians CSV file formats.
Last edited by Rob Relyea on Tue Mar 21, 2023 5:01 pm, edited 1 time in total.
Re: weighted expense ratio calculation?
Mine shows up in Portfolio Watch. I have no idea if it is accurate but it looks right.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
- Rob Relyea
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Re: weighted expense ratio calculation?
That is good to hear, thanks.
I'm trying to put it into the flow for portfolio reviews...and make it easy to calculate and collect that data.
[update]:
I actually decided to add the feature because I see it is one of the inputs of FireCalc.com on the your portfolio page -- would be nice to make it easier to calculate the inputs needed for firecalc.
- nisiprius
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Re: weighted expense ratio calculation?
Yes. To add to what others have mentioned. The key is to convert the costs to dollars, then add them up and convert them back to a percentage. This is just a way of computing a weighted average, but it makes it easier to see why it is correct. And since the size of the portfolio doesn't actually matter, you can use a round number like $100,000 if you like.BooneDocks11 wrote: ↑Sat Aug 01, 2020 3:55 pm Is there a simple way to calculate weighted expense ratios of a portfolio?
For example, if one wanted to compare a target retirement fund with an expense ratio of 0.46% and a portfolio with:
25% fund A (0.06%)
51% fund B(0.02%)
15% fund C(0.03%)
9% fund D (0.04%)
In your example, you have $25,000, $51,000, $15,000 and $9,000 in the four funds respectively.
So the dollar expenses for each holding are:
0.06% of $25,000 = $15.00
0.02% of $51,000 = $10.20
0.03% of $15,000 = $4.50
0.04% 0f $9,000 = $3.60
Total expenses are $15.00 + $10.20 + $4.50 + $3.60 = $33.30
Total holdings are $100,000
Overall expense ratio of the portfolio = expenses / portfolio size = $33.30 / 100,000 = 0.333%
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Re: weighted expense ratio calculation?
The original post was answered two years ago. Rob Relyea posted today with a reference to a tool to perform this calculation that woke this thread up.nisiprius wrote: ↑Tue Mar 21, 2023 4:14 pmYes. To add to what others have mentioned. The key is to convert the costs to dollars, then add them up and convert them back to a percentage. This is just a way of computing a weighted average, but it makes it easier to see why it is correct. And since the size of the portfolio doesn't actually matter, you can use a round number like $100,000 if you like.BooneDocks11 wrote: ↑Sat Aug 01, 2020 3:55 pm Is there a simple way to calculate weighted expense ratios of a portfolio?
For example, if one wanted to compare a target retirement fund with an expense ratio of 0.46% and a portfolio with:
25% fund A (0.06%)
51% fund B(0.02%)
15% fund C(0.03%)
9% fund D (0.04%)
In your example, you have $25,000, $51,000, $15,000 and $9,000 in the four funds respectively.
So the dollar expenses for each holding are:
0.06% of $25,000 = $15.00
0.02% of $51,000 = $10.20
0.03% of $15,000 = $4.50
0.04% 0f $9,000 = $3.60
Total expenses are $15.00 + $10.20 + $4.50 + $3.60 = $33.30
Total holdings are $100,000
Overall expense ratio of the portfolio = expenses / portfolio size = $33.30 / 100,000 = 0.333%
ALSO - your math is off - it’s .0333%
I posted that above when the thread was fresh.
viewtopic.php?p=5407651#p5407651
Cheers
- retired@50
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Re: weighted expense ratio calculation?
I calculate my weighted average in a spreadsheet, and it matches portfolio watch, at least it does when rounded to the nearest hundredth.
My spreadsheet says 0.0685% and Vanguard portfolio watch says 0.07% - close enough for me.
Regards,
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