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Overpaying for Your Investments: A Guide to Mutual Fund Fees

johnNjohnN
edited January 2020 in Fund Discussions
https://www.wealthdaily.com/articles/overpaying-for-your-investments-a-guide-to-mutual-fund-fees/94713

Overpaying for Your Investments: A Guide to Mutual Fund Fees

__Would you feel comfortable with giving up a third of your annual returns in exchange for basic portfolio management?

No?

Well, unfortunately, there’s a good chance you’re already paying that much without realizing it. After all, the average advisor charges an annual fee of roughly 1% of assets under management (AUM), and the average actively managed equity fund has an expense ratio of 1.2%. __



We usually buy index funds for these reasons, you get the average return but you don't pay much in fees, and only ~ 15% of funds do better than you year in and out

Comments

  • hank
    edited January 2020
    There’s two separate themes running here, seems to me.

    One theme is the long running debate: Active vs. Passive management. That’s been thoroughly debated / raked over the coals here and elsewhere over the years. I have nothing to add.

    The other theme seems to be the “gouging” of fund investors by way of “advisor” fees, management fees and operating expenses. Geez - How many here pay an advisor to oversee their fund holdings? He tosses out a 1% figure for management fees (but doesn’t cite it as an average). Even though I’m in actively managed funds, only two (both classified as “alternative investment”) breach the 1% expense ratio: TMSRX and QVOPX. All three from D&C carry ERs under .50%. At TRP my ERs range from .25% for TRBUX to .94% for RPGAX (excluding TMSRS mentioned earlier).

    I also think the author may be confused. He references “fund operating expenses” but seems to equate them with a fund’s management fee. As I understand it, operating expenses include trading costs, record keeping and the like. They do exist - but aren’t part of the ER that you and I see. Further, he appears to view the 12b-1 fee as outside the expressed ER, whereas it’s actually part of the expressed ER.

    Than there’s this : “ Management fees, on the other hand, pay the salaries of the analysts and other personnel who actually run the fund. They are not capped by law, but investors should be suspicious of funds with fees above 1%.“ ? Those costs would seem to fall under “operating expenses”.

    Having a degree in journalism doesn’t seem to get you much now days.
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