KCLau's Money Tips Forum

[Relax]

Let's say there are two funds with almost identical characteristic
Fund A and fund B

Fund A has good long term growth but it has very high load fees and service charge.

Fund B has gradual but slow long term growth but the load fees are very low

Let's assume they are same kind of fund, and their risk are more or less the same / neglectable

Both A and B has disadvantage and advantage.
Which one should I pick for long term benefit?

[KCLau]

Hi Relax,

I think this won't be happening. Why?

Let's assume they are same kind of fund, and their risk are more or less the same / neglectable

If risk of funds more or less the same, it will give more or less the same return.

So now you have fixed the variables - risk and return for both funds are similar.
Then you can confidently decide that the fund with the lower charges is the winner. In this case - Fund B.

It is like a mathematical equation, let's assume that you will select a fund based on these criteria:

Fund = Return - Risk - Cost (of investment)

Fund A = ReturnA - RiskA - CostA
Fund B = ReturnB - RiskB - CostB

Now you say that RiskA = RiskB, ReturnA=ReturnB, if CostA > CostB, we should choose Fund B because it is more economical.

In your scenario, Return A > Return B, Cost A > Cost B, Risk A = Risk B, then we can really use some number and calculate whether in the long term, is Fund A going to outperform Fund B.

But if you said that the funds in same categories, same strategy, same portfolio. Therefore, Risk A = Risk B and Return A = Return B.
So just compare the cost you will get the answer straightaway.

[jutamind]

for me consistent return with low volatility at the least cost will be the ultimate choice...