Fund investing is cheaper than ever
NEW YORK — Take a bow, investors. It’s never been cheaper to invest in funds, and it’s largely because of you.
Investors are increasingly heeding experts’ advice to seek out lowercost funds in their 401(k) accounts and other portfolios. And because so much money is massing in the cheapest funds, the pressure is on the rest of the industry to cut their own expenses or risk losing even more dollars. The result of this heightened cost consciousness: Investors are keeping more of their own dollars and possibly setting themselves up for better returns in the future.
The steady drip lower for expenses means $63 of every $10,000 invested in stock mutual funds went to cover fees last year. That’s down from $67 a year earlier and from $104 two decades ago, according to figures published recently by the Investment Company Institute, an industry group. Bond funds have seen a similar drop in fees: The average cost has dropped to $51 from $84 of every $10,000 invested over the last two decades.
A separate study released last year than ever before for their mutual funds and exchangetraded funds, on average.
One of the biggest drivers is the exploding popularity of index funds and ETFs, which boast some of the lowest expenses in the industry. Many investors have given up on trying to find star fund managers who can deftly pick the right stocks and bonds to beat the rest of the market.
Instead, they’re fine with riding funds that merely track the movements of the Standard & Poor’s 500 and other indexes.
Because index funds don’t have to hire teams of stock pickers and other market analysts, and because they’re all trying to do roughly the same thing, these funds typically compete on price, and that price has been inching closer to zero.
Schwab and iShares have ETFs that track the broad U.S. stock market with expense ratios of just 0.03 percent, for example. That means $3 of every $10,000 invested goes to cover fees.
As a group, index funds have an average expense ratio of 0.17 percent, according to Morningstar.