High Mutual Fund Fees Tied to Fund Complexity

 “The larger the fee the less that it performs. It’s kind of a straight line." financial adviser David Marotta charted the fees and 10-year returns for dozens of S&P 500 index funds. "Since these funds all track the same index and their performance is roughly the same, the fees will largely determine how much of the return the investor keeps and how much goes to the mutual fund company."

"The fees for the S&P 500 index funds he analyzed... ranged from one-tenth of a percent to 2.5 percent of the invested assets." 

Read the Squared Away Blog post at: https://squaredawayblog.bc.edu/squared-away/high-fees-tied-to-mutual-fund-complexity/

Fees really do matter! Check out this useful tool: The FINRA Fund Analyzer https://tools.finra.org/fund_analyzer/ that shows in dollar the impact of fund fees over time.

 

Vanguard mutual fund company lowers fees on index mutual funds

Vanguard is famous for its low investment expenses but now the deal gets even better. 
The Wall Street Journal reports that Vanguard is lowering the minimum investments needed to qualify for admiral shares which charge lower expenses than the regular investor class of funds. Instead of $10,000 minimum to qualify for lower expense ratios, one only need to invest $3,000. The new lower fees apply to 38 index mutual funds.
Details at: https://investornews.vanguard/our-index-funds-changed-investing-forever-now-were-making-them-even-better/

Keep your investment expenses low!

“How Do Fees Affect Plans’ Ability to Beat Their Benchmarks?”

by Jean-Pierre Aubry and Caroline V. Crawford

The brief’s key findings are:

• One way that public pension plans assess their investment performance is to compare returns by asset class to selected benchmarks.
  
  
• Plans pay fees to external asset managers with the expectation that they will exceed the benchmarks.
  
  
• As these fees have come under greater scrutiny, the question is whether higher fees help plans outperform their benchmarks.
  
  
• The analysis, using new data for 2011-2016, found that plans that paid higher fees experienced worse performance relative to their benchmarks.
  
  
• This finding held across all major asset classes, but was particularly pronounced for alternative assets, such as private equity and hedge funds.

This brief is available here.

Quoted from the Center for Retirement Research at Boston College. 

Take-away: Keep your expense low by investing in low cost index funds (not all index funds are low cost).  

Ignore hidden investment fees at your peril

Too often investors ignore the hidden fees in their retirement accounts, assuming that their employer or financial salesperson has their best interests at heart. Don't be so naive!  "Most people understand the basics of retirement planning. You set aside money to invest and save every month, and you keep daily expenses in check. Sounds pretty simple, right?

Not exactly. Even with a plan in place and the best intentions, you could be one of millions of Americans giving up hundreds of thousands of dollars in hidden fees. But how do you know? If you're saving for retirement with one of the leading brokerage firms, the answer is that you're probably losing retirement income to fees." Read the details by Bill Harris at: http://www.cnbc.com/2016/04/26/how-hidden-fees-can-crack-that-nest-egg.html

Understanding Investment Fees: From Brokerage Commissions to Sales Loads

"Investment and brokerage fees eat into your investment returns. Whether they’re baked into the funds you’ve selected as an expense ratio, added on as a brokerage commission when you buy or sell, or charged by an advisor who is helping you sort through it all, it’s important that you know what you’re paying." Arielle O'Shea explains the wide range of fees that eat away at investment accounts and suggests ways to reduce or eliminate them. https://www.nerdwallet.com/blog/investing/brokerage-commissions-fees/

3 Investment Gurus Share Their Model Portfolios

Investing doesn't have to be complicated!
"How do some of the most respected investors on the planet think Americans should be investing their money? NPR talked to three about what a retirement portfolio should look like."
diversify, pay low fees, & adjust your asset allocation as you age. Check out the advice from an interview with the experts on NPR: http://www.npr.org/2015/10/17/436993646/three-investment-gurus-share-their-model-portfolios

Low investment returns mean you need to keep costs low!

Virtually all the projections that I've read about investment returns in the next few years (and longer) strongly suggest that overall returns will be considerably less than historical averages. Thus, it is even more critical than ever to ensure that you are not paying too much for management fees and investment advice. Are you sure you understand how much you are being charged for investment advice in terms of adviser fees, commissions, and management fees? If your adviser is charging "only" 1% of assets under management, you had better educate yourself about how that eats into your returns.
Check out Walter Updegrave's advice on reducing costs at: http://time.com/money/3821009/retirement-one-investment-you-need/
   

Why Active Management is a Bad Idea

USU employees are being offered the opportunity to have their 403(b) retirement investments actively managed by Fidelity... for a "small" fee. Just say NO to active management! Despite Fidelity's slick marketing campaign, all the research evidence confirms that active management DOES NOT pay off. For evidence on why active management is a costly idea that only enriches the manager and not the investor see: How to Win the Loser's Game, a research-based documentary in 10 short segments that includes interviews with the greatest minds in investing. See:

How to win the loser’s game https://www.youtube.com/watch?v=SwkjqGd8NC4

The Most Important Question To Ask Your Financial Advisor

"Whether you already have a financial advisor or are now looking to hire one, you want someone who has your best financial interest at heart. That means that when she is helping you direct your money and advising you on financial goals, she’s not just selling you products that she will be making money on, while you shell out more than need be." This article by Laura Shin may help you understand the complexities of how the financial industry works:

http://www.forbes.com/sites/laurashin/2014/12/18/the-most-important-question-to-ask-your-financial-advisor/

It is the most thorough and understandable explanation I’ve read and should be read by everyone who buys investment or advice from a financial salesperson/adviser/planner.

Fees REALLY do matter!

My students probably agree that my favorite soapbox is to rant against high investment fees. What you are being charged to invest is the only information you have about the future and it is one variable under your control. Please click on the link below and read about the 5 fees that are killing your retirement. Here is a brief summary but read the convincing details in the linked article by Robert Berger:
1. Advisory fees. "Paying an investment advisor 1 percent or more annually almost guarantees below-market performance. Even the most talented advisors, over the long run, are unable to beat the markets by the cost of their services."
2. Management fees. Mutual fund fees- keep them low with index funds. Despite the advertising, actively managed funds don't beat the indexes over time.
3. Transaction costs. The expense ratio does not include a mutual fund’s cost to buy and sell shares.
4. Commissions. "While fee-only advisors do not earn commissions on the investment products they sell, commissioned brokers do. These fees typically amount to more than 5 percent of the amount invested. Commissions are in addition to the management fees charged by the mutual funds."
5. Unnecessary taxes. "Actively managed funds often generate significant tax liability. While these taxes are of no concern in a tax-advantaged retirement account, they can represent a significant drag on performance in a taxable account." Stick with index funds, especially for your taxable (non-retirement accounts). 
http://money.usnews.com/money/blogs/on-retirement/2014/06/23/5-fees-that-are-killing-your-retirement

You Probably Have No Idea What You Pay Your Financial Advisor In Fees

"Most people have an idea of what they’re being charged for a service, but just like phone bills and bank account statements, there are plenty of hidden or additional charges that go largely unnoticed and might be affecting your bottom line. So as for your investment accounts... the only real way to know is to investigate what’s inside…there may be some surprises." Learn more from Roger Gershman at: http://www.forbes.com/sites/rogergershman/2014/06/03/you-probably-have-no-idea-what-you-pay-your-financial-advisor-in-fees-heres-why/

Podcast: What you need to know about mutual fund fees

"All mutual funds charge fees. The higher the fees you pay while owning a mutual fund, the lower the return you can make from your fund shares. Even a small percentage difference in the fees among funds can add up to a big difference in the dollars you can make. It's important to be aware of all the fees associated with a mutual fund investment." Listen to the 6 minute FINRA podcast  (& check out other podcasts) at: http://www.finra.org/Investors/SmartInvesting/GettingStarted/Podcasts/MutualFundsETFs/P487257?utm_source=MM&utm_medium=email&utm_campaign=Investor_News_042414_FINAL

Be Aware of the Impact of Fund Fees

Are excessive financial fees eating your returns?  “Many investors are simply unaware of how much they are paying in fees. Morgan Housel notes how one friend wasn't aware that a 1.5% annual fee equated to a massive expense.” "Over Christmas, a family friend asked me to take a look at her finances. She's in her 60s, worked hard her whole life, and accumulated a couple of million dollars to retire on. She's had a financial adviser at one of the nation's largest banks for the past five years. I met him once; he's a nice guy. Smart, able, honest, and competent, he put my friend in a basket of investments -- mostly low-cost index funds, a few individual stocks, and a portfolio of bonds -- keeping her on track to enjoy a comfortable retirement.She's happy with her adviser. For the most part, I was, too. There's just one problem: He charges an incredible 1.5% of assets as his annual fee. I tried to explain to my friend how high this was, but my comments were met with a shoulder shrug. One and a half percent didn't sound like much to her.” BUT… “It was literally the single largest line item on her budget. More than her mortgage, more than her food bill, more than she spent on travel, clothes, entertainment, gifts, medical care, cars, and tuition for her kids." USA Today (2/24) What are you paying in investment fees? http://www.usatoday.com/story/money/personalfinance/2014/02/24/where-are-the-customers-yachts/5785353/

Index Funds Outperform Actively Managed Funds

The latest research confirms what many other studies have demonstrated: that investors should put their money in low cost index funds and skip higher cost actively managed mutual funds.  ETF manager Rick Ferri compared passive (index) funds against 5,000 randomly selected active portfolios using 32 different investing strategies. “The indexing solution won 82.9% of the time on average, and in the small percentage where active funds outperformed the median outperformance was 0.5%.” According to Ferri, “The bottom line is a fee. Fees matter.”  And if taxes were added into the mix, the advantage for indexing over actively managed funds would be even greater. Read a bit or detail or delve into the full study with this link:

http://www.thinkadvisor.com/2014/01/28/how-does-passive-beat-active-let-me-count-the-ways?page_all=1