Ray D: I just used your Mutual Funds Cost Calculator. I have $162,000 ($54,000 of it in accumulated gains) in LAFFX. Your table gives me an idea that switching to Vanguard tax-managed income/growth would be much wiser. So it seems that selling my position might be smart? I am in the 40% tax bracket Fed/state combined.

Well, this is the $64,000 question. Its much like the question of when it makes sense to refinance a mortgage to take advantage of lower interest rates. How do you balance the lower monthly payments against the one-time cost (and hassle) of refinancing? You can never know for sure, except with hindsight, because you dont know how long youll own your home or even where interest rates will be next month. (If they went down a quarter of a point, youd have been better off waiting.)

When it comes to switching to a lower-cost mutual fund, the answer may be, if anything, less certain. But at least one side of the trade-off is pretty easy to estimate: the up-front cost of make the switch. In your case, given long-term gains of $54,000, youd probably have to pay around $13,500 in tax (give or take), to sell your Lord Abbett Affiliated Fund Class A shares (symbol: LAFFX). Im assuming the gain is all long-term and that your 40% ordinary-income tax bracket translates into about a 25% long-term gains rate.

(Im also assuming you are not accidentally double-counting as taxable gains appreciation from reinvested dividends. Youve already paid tax on that portion of the growth in the value of your holdings. This is a common mistake.)

(Note to novices: Speaking of common mistakes, some people think that when you switch from one fund to another within a fund family, and receive no actual cash, theres no tax to pay. Sorry. Switching from one fund to another means selling the first fund and buying the second. And when you sell the first, unless it was sheltered from tax in an IRA or someplace, you owe tax on any gains.)

Of course, if it werent for taxes, Id suggest youd dump LAFFX for the Vanguard fund or one like it in a heartbeat. But since taxes are a factor, how long will it be before the likely improved performance exceeds this $13,500 hit?

First we have to make some assumptions on just how much better you might actually do in the lower-cost fund.

According to the Mutual Funds Cost Calculator. your Lord Abbett fund, symbol LAFFX, is a bit of a dog. Morningstar gives it four stars, which is great if youre a general in the Army. But to begin with, LAFFX charges a 5.75% load. You likely paid several thousand dollars in commissions just for the privilege of buying this thing. You may just as well have burned that money. But thats not relevant to your decision, because whats gone is gone.

Whats relevant is the difference in ongoing costs. We show that you paid just over $5,000 last year in fees and taxes to own the fund. Thats $3,500 to $4,000 more than you would have paid with the four low-cost alternatives we display (one from Vanguard, two from Schwab, one from Strong).

So, all other things being equal, it would take three or four years before the $13,500 up-front cost in taxes were overtaken by your cost savings. (Over the next 30 years, you could come out hundreds of thousands of dollars ahead.)

But are all other things equal?

If never mind the costs and taxes LAFFX way outperformed the other funds we compare it to, then you might not care what the costs and taxes were. But, interestingly, at least last year, LAFFX was the hands-down loser of the five. Pre-tax it showed a 16.5% return, where the others ranged between 21% and nearly 24%. After-tax, LAFFX made 14% for you versus the 20.8% increase in wealth you would have had from the worst of the other four.

Might this be because LAFFX is a much more conservative fund? A laggard in up years but stellar in bad years? Probably not.

We dont show beta in our calculator, but I looked it up, and for LAFFX its . 87. A beta of 1 means that a fund is likely to go up or down about as much as the market. A beta of 2 means its a lot more volatile if the market goes up or down, the fund is likely to go up or down twice as much, like a higher-strung theater-goer. (You, with your beta of one, laugh when somethings funny, sniffle when its sad. The guy in the seat ahead of you with a beta of three becomes hysterical .) A beta of just . 5 means a fund is hard to move at all (a slight squint as Jackie Mason riffs; a furrowed brow as Juliet sees Romeo and dies). So LAFFX, at . 87, was a little stodgier, but basically pretty much like the market.

Why would anyone give up 5.75% and then extra expenses and taxes for a stodgy fund?

(I can rag on Ray this way, because apparently LAFFX was not his idea. He inherited the shares. His benefactor was wise to save/invest money, generous to leave some to Ray, but no genius for choosing this fund.)

In short, the decision of whether to switch depends on several things. First, the cost of switching that part we know but then how much better youd do in the new fund. Maddeningly, it is very hard to find funds that will do meaningfully better than average over the years. (Some years, yes; but not, cumulatively, over the years.)

So it often does make sense to switch to a lower-cost fund and the longer you plan to hold the new fund, the more sense it makes. If Ray planned to use this money to buy a house in two years, he shouldnt switch. If hes likely to just let it grow for 30 years and then begin gradually drawing on it for retirement, he should.

Theres also the issue of tax bracket. If for some reason Ray were soon to be in a much lower bracket, he might wait. The tax on his $54,000 gain would be lower (although for the long-term gains rate to be appreciably lower hed almost have to be starving); and the cost differential between the funds would be lower, because a lot of that difference this past year, and possibly going forward, is in the higher tax impact from LAFFX.

If Ray believed Congress were soon going to abolish or greatly reduce the capital gains tax, that would be another reason to wait.

So there are no guarantees what course of action will be ideal. But for most people in high-cost funds, switching to a low-cost fund makes almost as much sense as having bought a low-cost fund in the first place. (If youve been buying shares in a high-cost fund all along, it could make sense for you to sell the shares for which you paid the highest price, and on which you have a relatively low taxable gain; but to keep the shares you bought way back when, at a tiny fraction of todays value.) I hope the Mutual Funds Cost Calculator helps you to think these things through. If it did prompt you to make a switch that did leave you hundreds of thousands of dollars ahead 30 years from now well, wouldnt we have something to crow about?

Tomorrow: Why not all our data may be right and how to check