Here's a piece from USA Today that says "comparison-pricing your mutual funds — and dumping the expensive ones — is one of the best investment moves you can make." I totally agree -- expenses can make a tremendous difference in your return. So I wanted to share this piece that shows how ditching expensive funds can save you a lot of money. First, the background:
Mutual funds charge shareholders for expenses: management fees, advertising, rent. These expenses are expressed as a percentage of the fund's assets, called the expense ratio. The average stock fund charges about 1.5% of assets each year.
You may not notice the expense ratio. When you look at your account balances, expenses have already been taken out. But your expenses can be a tidy sum. Suppose you have $50,000 in your account. If the fund goes nowhere all year, you've simply paid $750 to the fund management. That's not chump change.
The piece ends with some places to find low cost funds:
- Index funds.
- Big funds.
- No-load funds.
I invest heavily in index funds for the reasons noted above (plus, it doesn't take much time). If you want some more details on index fund investing, see these posts:
- Getting Rich is Simpler than You Think
- Fund Indexers, Take (Another) Bow
- Expenses, Taxes and Size Matter in Choosing Bond Funds (And Stocks too!)
- Where the Pros Stash Their Own Dough
- The Case for Indexing
- Investment Advice from Someone Who Manages Billions
Free Money Finance recommends Emigrant Direct.
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