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That's why it pays to exert control where possible, and for
investors, that means keeping expenses in check. When the S&P
500 loses 2% anyway, why lose more by owning a mutual fund or
exchange-traded fund that tries to mimic it and then tacks on
higher fees to do so?
Fortunately for investors, finding lower-fee funds has become
easier every year as the industry feels pressure to compete for
investors. Across all U.S. stock mutual funds, investors are
paying about 42 cents in fees for every $100 invested, according
to the latest 2023 data from Investment Company Institute.
That's down by more than half from 99 cents in 2000.
And the momentum is continuing. Earlier this week, fund giant
Vanguard said it was reducing expenses across 168 classes of
mutual funds and ETFs, calling it the largest fee cut in the
company's nearly 50-year history. The investment firm said the
reductions will save its fund investors more than $350 million
this year alone.
"Lower costs enable investors to keep more of their returns, and
those savings compound over time,” said Salim Ramji, Vanguard’s
chief executive officer.
Most funds advertise their fees as something called an expense
ratio. It shows what percentage of a fund's total dollars go
toward covering its annual expenses. A lower number is generally
better. Most expense ratios will be below 1%, and some funds
even boast of zero expense ratios.
Vanguard's cuts from earlier this week took the expense ratio of
its Total International Stock fund ETF down to 0.05% from 0.08%,
for example.
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