|
What’s Under the Hood? A Look at Expense Ratios
In addition to the sales charges or loads that many mutual funds and other investment products carry, you also need to be aware and concerned about additional fees identified as the “expense ratio” of a fund.
In many cases, some careful research can help you completely eliminate hefty sales loads. However, for all intents and purposes, all mutual funds carry an expense ratio. But guess what, the amount each fund charges as an expense ratio can vary dramatically. Therein lies the opportunity.
Each of these fees affects you the same way. They contribute towards deteriorating your principal.
Here’s the difference between the two sets of fees. The sales load or commission is compensation that is usually paid to the selling agent for distributing (selling) that product. That could be a stockbroker, financial planner, insurance agent, etc.
The expense ratio is the fee charged by the mutual fund company that actually takes possession of your money, hires a portfolio manager to invest it, prints and sends you a prospectus and statements, etc. A fund’s expense ratio represents the rate charged against your account annually.
Expense ratios are another great area to review when you are trying to slim down costs. Make sure you are comparing apples to apples. What may appear on the surface to be two very similar products may in fact carry significantly different fee structures.
In a broad review of a database of nearly 12,000 mutual funds, we found*:
Expense Ratios as high as 4.84%, and as low as .10% (1/10 th of 1%); and No evidence that high cost of ownership products offered consistently better returns; and Strong evidence that among the top performers, low cost (low sales charges and low expense ratios) products are regularly found.
Remember, the expense ratio is something that you pay year in and year out, as long as you own the investment. This makes careful analysis and smart choices up front especially important when reviewing this area.
This is an excerpt from our 9-page guide “Keeping More of What’s Yours Already”. If you’d like a complimentary hard copy of this booklet, send us an e-mail by clicking here. Just type “Keeping More” in the subject, leave your name and address, and we’ll promptly send you a copy.
* It is not our intetnt to single out vendors of mutual funds. The names of the referenced items have been kept anonymous. Details are available upon request.
[Back to Top]
[To Investing Home Page]
[To Reading Room]
Copyright © LongView, Inc. All rights reserved.
|
Don’t underestimate how much you can positively impact your long-term financial health by making even small improvements to your current Retirement Planning and Financial Planning strategies.
Need a CERTIFIED FINANCIAL PLANNERTM in Orlando? GO
|
|
