Watch Your Mutual Fund Fees

Next time you have a few spare minutes, check out how much your mutual funds are charging you for investing your money. It’s not uncommon for an actively managed mutual fund to be pushing over 1.5% in terms of fees and if that fund isn’t beating the market average each year by at least 1%, you’re paying more money for less performance which is a lose-lose!

Consider the Vanguard 500 Index Fund Investor Shares (VFINX), which returned exactly the same as the S&P Index (minus it’s expense ratio of 0.18%) every single year since its inception, not surprising since it’s an index fund that mirrors the S&P, but compare that with your own mutual funds.

Fees aren’t everything, if part of your strategy is to diversify your holdings and put 50% in domestic stocks and 50% in international holdings, you shouldn’t compare your international holdings to an S&P index fund. You also shouldn’t compare your domestic stocks to an S&P index fund, unless you’re holding the same types of investments that are in the S&P Index… in that case, you should be in an index and not in some actively managed fund (unless they’ve consistently given you above market returns and you have faith they’ll continue to do so).

I’m not advising of anything other than you should be aware how much your funds are costing you and that you should investigate cheaper more effective alternatives if they exist. 1% may seem like a pittance, but the difference between 11% and 10% on $1,000 over 30 years is $5,442.89, now multiply that by your holdings and it makes a big difference (a nice vacation? a car? a house?).