A study conducted by investment research company Morningstar in 2010 compared investment performance among US mutual funds within various categories such as Domestic Equity, International Equity and Bonds. Morningstar concluded:
“in every time period and data point tested, low cost funds beat high cost funds.”
“expense ratios…..are still the most dependable predictor of performance.”
In other words, the lower the cost (and the higher the T-Rex Score), the better the result.
Your T-Rex Score reveals how efficiently your investments convert total returns into returns for you!
The T-Rex Calculator allows you to determine T-Rex Scores for an endless range of scenarios. So start with any scenario you wish. Make adjustments. See how your T-Rex Score changes. You may be very surprised!
Enter the amount of your existing or contemplated investment.
Enter your estimated investment Time Horizon.
Example 1: A 45 year old anticipating a long life may enter a Time Horizon of 30 or 40 years.
Example 2: A 30 year old looking to project the value of an investment at age 65 may enter a Time Horizon of 35 years.
Example 3: A 60 year old projecting the value of an investment at age 80 may enter a Time Horizon of 20 years.
Enter an average annual return on investment before fees.
Not sure what your future investment return will be? That’s ok. No one knows. Not the experts. No one. Here are some suggested starting points:
Enter the total of annual fees deducted by your investment providers including your broker, investment advisor and fund managers as well as any fees paid directly by you. The challenge here is getting a full picture of fees. Millions of investors are unaware that fees are charged by their investment providers. Most of those that know fees are charged are unaware of the full extent of fees they are paying.
Regardless of the nature of your investments, and even if you are confident you know the full extent of fees you are paying, send your provider the following request:
“I need to get a complete and clear picture of investment fees I am incurring. Please provide (in writing) a full summary of all investment related fees I am either paying to, or are being deducted by, you, your firm, any underlying fund manager and any other party involved. Please provide fee details both in terms of current dollars and percentage of my total investments. “
Don’t be satisfied until you receive and fully understand this summary.
As you experiment with different scenarios, you will see that combinations of longer Time Horizons and higher Rates of Return can produce astonishing Total Gains. This is the power of compounding.
Expressed as an annual percentage of your investment balance, Fees may appear modest, but the impact of Fees increases significantly over time.
(After Fees, you may still be left with lots of magic. But remember, you also need to beat taxes and inflation to produce real investment gains!)
How can such small fees take such a huge chunk of my investment return? Why does my T-Rex Score decline over time? Are these numbers for real?
Once you are satisfied that you have a good sense of how the T-Rex Calculator works and how your T-Rex Score varies under different amount, time, rate and fee scenarios, input the scenario that you feel best represents your circumstances. You may wish to apply a rate of return similar to those suggested. Or you may be more conservative or more optimistic. It’s totally up to you.
Now you know your T-Rex Score!
Is your most likely scenario reasonable? Have you included all fees? Might your advisor suggest alternative scenarios? Send a copy of your T-Rex Score Report to your advisor and get their comments!
Banks, insurers, fund companies, brokers and advisors provide service including access to investments and, in many cases, some degree of advice. Your T-Rex Score reveals the true cost of this service.
Now you can make a “value” judgement. Are you are receiving your fair share of investment returns?
You may be satisfied with a very high T-Rex Score. Or you may find a lower T-Rex Score acceptable because the service you receive is worth it. If so, well done.
But what if you aren’t satisfied with your T-Rex Score? What if you are not sure what to think?
What can you do?
Learn the basics!!
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