Saving Pennies or Dollars? Investment Fees

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Kelly writes in: My husband I have lots of hobbies/interests and finances do not excite either of us so we are not savvy. We are great savers but don’t really know what to do with the money. We have our retirement accounts through work (Fidelity) and an emergency fund in a high interest checking account. In addition we had about $60,000.00 (that we don’t have plans for) in Vanguard money market funds until the rates dropped and we were not earning any interest. Because there is not a Vanguard office near our home (and we did not know where to put the money) we met with an advisor at Fidelity. We moved the money into stock market accounts and have made a significant amount of money. I have heard and read that Fidelity has higher fees than say, Vanguard, but if we can meet with an advisor yearly and are making significant money on this money do you think it is worth it? Or, is there a way to figure out what funds to put the money in at Vanguard? Are we talking about saving pennies or dollars?

In this instance, you’re comparing apples to oranges. Comparing a Vanguard money market account to a Fidelity stock fund isn’t even close to a realistic comparison. Money market accounts are typically invested in things that would be considered ultraconservative, like U.S. treasury notes. On the other hand, stock funds are invested in the stocks of companies and, by their very nature, are much more volatile, with big gains and big losses within the realm of possibility.

The only way to really gauge the impact of investment fees is to compare identical investments from two separate investment houses, which is extremely difficult since it’s rare for two investment houses to have identical offerings. Even if you compare very similar investments, like the Vanguard 500 and the Spartan 500, it’s still not an exact comparison because of small variations between the funds.

For example, with the funds above, the basic level investor shares of the Vanguard 500 has an expense ratio of 0.17%, with Admiral shares (with a minimum investment of $10,000 required) havving an expense ratio of 0.06%. The Spartan 500, offered by Fidelity, is somewhere in the middle at 0.10% (but has a $10,000 minimum investment). This gives an overall nod to Vanguard based solely on the expense ratios.

How much does that save, though? Let’s say you invested $10,000 in each of those two funds. An expense ratio means that, in a given year, that percentage of the assets is being used to maintain the fund, employ the people running it, and so on.

So, at the end of 2009, a fund with a 0.06% expense ratio might have a face value of $10,000. Another fund with an expense ratio of 0.10% also has a face value of $10,000.

During the year 2010, the assets in those funds gain, let’s say, 2%. At the end of that year, the 0.06% expense ratio fund would have a balance somewhere close to $10,193.88 (depending, of course, when the expenses were taken out) and the 0.10% expense ratio fund would have a balance close to $10,189.80. This amounts to $4.08.

In other words, when the difference in expense ratios is small and your investment amount is relatively small, the amount of money you’re saving and losing is small.

However, let’s say you’re investing $1,000,000. The amount of money due to the difference in expense ratios is much closer to $408, and suddenly you’re talking about significant money.

Even with the $60,000 mentioned in the question, you’re talking about an approximate annual difference of $24.08, which may be less than the value they get from talking face-to-face with an advisor.

What about the difference in expense ratios? Let’s say that one fund has an expense ratio of 0.06% and the other has a ratio of 0.60%. You’re talking about a rough difference of $55.08 per year on an investment of $10,000, and $5,508 per year on an investment of $1,000,000. That’s a big difference.

Again, these types of comparisons only mean anything if you’re comparing very similar investments. The greater the difference between the investments, the less it means in the sense of a direct comparison.

As a rule of thumb, I usually subtract the expense ratio from the annual return numbers on any investment I look at. Although this isn’t anything like an exact comparison, it does give me an idea of how much I’m going to be hamstrung by their expense ratio over the years.

Usually, this leads me to investments with very low ratios. Usually, I find these types of investments at Vanguard or Fidelity, the two places you mention.

It is important to note that you shouldn’t just chase low expense ratios when you’re investing. Putting everything in the investment with the lowest expense ratio isn’t well diversified and will lose you money.

To put it simply, when you’re investing small amounts and the difference between the expenses in comparable investments is small, you’re talking about pennies (or a few dollars). But if either of those factors grows large, you’re quickly talking about dollars – and often lots of dollars.

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Saving Pennies or Dollars? Making Your Own Salsa

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Alexis writes in: My husband and I go through a jar of salsa a week. Problem is, the brands without high fructose corn syrup average $2.79 at our grocery store. Would it be cheaper to make our own? Since tomato season is about to end on the East Coast, would canned tomatoes make a difference in the DIY route?

I’m with you on avoiding the high fructose corn syrup in salsas. I try to avoid it in everything I eat. The human body doesn’t need it, to say the least.

Of course, when you make that choice, prices go up. As you mention, it’s pretty tough to find salsa in the store without corn syrup in it for under $3 per jar.

But how much does it cost to make salsa at home? I like Alton Brown’s simple salsa recipe, so I’ll use that as an example. It contains:

6 Roma tomatoes, chopped
4 garlic cloves, minced
2 seeded and minced jalapenos, plus 2 roasted, skinned and chopped jalapenos
1 red bell pepper, fine dice
1/2 red onion, fine chopped
2 dry ancho chiles, seeded, cut into short strips and snipped into pieces
1 tablespoon olive oil
1 lime, juiced
Chili powder, salt, and pepper, to taste
Fresh scallions, cilantro or parsley, to taste

I went to the local grocery store and price-checked these items, using a few simple substitutions (like diced tomatoes for the Romas). I came up with a total of $4.40.

I then made a batch of this and found that it made a volume of salsa equal to about two and a half typical salsa jars. I saved it fresh in the refrigerator.

So, my cost per jar of making it from scratch is about $1.80. This assumes, of course, that I keep it fresh in the refrigerator and don’t can it. If I choose to can it, the cost is going to start approaching that of just buying a jar in the store.

My conclusion is that if you’re just making some fresh salsa for a party or something, it’s cheaper to make good salsa yourself. However, if you’re making it to can, you’re going to want to think about your approach carefully.

Of course, there’s one big key to all of this: the garden. If you have a garden that can provide you some or all of the ingredients in the recipe, your salsa is going to be less expensive whether you can it or not.

For example, pulling just the tomatoes and a bell pepper from one’s own garden drops the price of ingredients by about half. Plus, your salsa will taste better. This saves dollars, not pennies, and it saves your taste buds, too.

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Saving Pennies or Dollars? Garage and Yard Sales

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Naomi said, Garage Sales – it takes a day to set up; we usually purchase lunch that day because we’re busy (day before and day of) adn can’t make lunch…and usually gross about $150 – 200.

I’ve found that garage and yard sales can vary greatly in their success level depending on a wide variety of factors.

The amount of promotion If you promote your yard sale with signs and flyers, you’re going to get a lot more traffic. The more you promote it, the more traffic you’ll get. Savings tip: I tend to try to schedule yard sales in conjunction with my neighbors so that we can promote our yard sales together. Our town has a regular “city wide yard sale,” so we’ll schedule things in conjunction with that.

The weather on the day of the event If the weather is beautiful, you’ll see more traffic. I’ve actually postponed yard sales because of forecasted bad weather (since I do much of my promotion during the week before the yard sale).

Meal preparation What I often do is prep all of our meals two days in advance of the yard sale. I’ll make food so that it’s easy to pull out of the fridge and eat at the table. Often, we’ll just have sandwiches for lunch the day of the sale, eating while the sale is going on. If you find yourself ordering food, you’re going to reduce the profits from the sale.

Quality of items If you have good stuff to sell, you’re going to make more money than if you’re selling retreads from previous sales. People go to yard sales to find bargains on stuff they actually want. If all you’re offering is well-picked-over stuff, you’re not going to make a lot of money.

What I usually do is give away what’s left at the end of a yard or garage sale. I’ll take the remnants to Goodwill and other stores and give them whatever they’ll take. If there are still items left, I’ll often trash them, as they have little value (I didn’t want them, my customers didn’t want them, and Goodwill didn’t want them). This ensures that the next yard sale I have will be all new items, not retreads that didn’t sell before. This drastically increases the percentage of sales I’ll make.

I also make sure the items are as clean and presentable as possible.

Quantity of items The more you have, the more you’ll sell. Of course, there’s a caveat along with that…

Organization of items If you throw everything out there in a mish-mash and it’s hard to find all of the items or find similar items, you’re going to have a hard time making the sale. This means using your space effectively so similar items are near each other and as many items as possible are easily accessible.

All of these factors play a role in garage/yard sale success. The fewer of these things that you successfully pull off, the less you’ll sell at your yard sale and the less you’ll earn per hour of time invested.

The last yard sale I ran, I netted about $600 after expenses. I estimate that 30 hours of work went into the yard sale, giving me a return of about $20 per hour. (Of course, I was selling off items that I already owned.)

A poorly managed garage or yard sale earns pennies for the hours you invest. A well managed garage or yard sale earns dollars.

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Saving Pennies or Dollars? Oil Changes

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Matt said, I’d like to see your take on changing oil at home versus having it done at a shop. I’ve done my own calculations on the matter but I think it might be worth exploring on your blog.

Oil changes are pretty simple to do at home. If you’re changing the oil, you literally just slide under the car with a pan, remove the plug so that the oil runs into the pan, then go do something else. A while later, you put the plug back in place, open the top, and add oil until full. Done. If you’re changing the filter, you also just pull out a filter in the middle and insert a clean one in the middle of this process.

The actual labor for this is five or ten minutes (once you’re used to it), and you can save the old oil in a jug in your garage until you have a chance to drop it off somewhere when you’re out and about on errands.

On the other hand, if you go get your oil filled for you, it takes at least that long to interact with the people there, plus there’s the dreaded waiting. Ideally, you have the ability to do something else while there, but that’s not always a guarantee.

My local Jiffy Lube will change the oil in your car for about $30. For roughly another $20, they’ll also change your oil filter.

I can acquire a quart of the high-quality synthetic motor oil I like to use in our car for $6 (shipped to our house for free), and it takes four quarts to fill it. I can also get an oil filter that fits for $11.

Thus, our materials cost for a single oil change is $24. If we couple that with an oil filter change, it’s $35. This compares to an oil change cost of $30 and $50, respectively.

In short, I save about $15 doing it myself. (The exact math will vary depending on your make and model of car, of course, but it will be along this order of magnitude.)

Now, here’s the tricky question: how much is it worth it to you to avoid having to climb underneath your vehicle twice? For some, it’s just a job that they don’t want to do and it’s worth the $15.

For others, there’s extra value in doing it yourself because you can be sure it’s done correctly and with oil and filters that are of your own selection and not of the dealership. What do I mean by “done correctly”? Many oil change places do not let the oil drain for a sufficiently long period of time. A few minutes of draining means there’s oil still inside, while an hour or so of draining will get rid of much more dirty oil. However, oil change businesses usually won’t let your car drain for an hour.

For still others, it comes down to the value of their time. Whenever I get my oil changed, I choose to do it simply so I can drop off my car while running other errands. I’ll walk to a nearby grocery store, choose to drive up to get my groceries, walk back to the oil change station, get my car, then drive back for the groceries. Doing this allows me to effectively multitask.

On the other hand, if it’s a Saturday afternoon and there’s nothing special going on, one might as well change the oil in one’s car and save $15.

Changing your own oil saves dollars, not pennies, but there may be other factors that convince you to hire someone to change it for you.

Dinner With My Family won’t be posted this week because, frankly, I spent most of the last week traveling or at other social events. It should resume next week.

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