Here is another reason to invest your money into an exchange traded fund (ETF) instead of an actively managed mutual fund: declining mutual fund expenses probably won’t go lower, they may actually go higher.
After several years of steady decline, the average asset-weighted mutual fund expense ratio last year was the same as in 2006, 0.9%. One of the reasons for the decline is competition with lower-cost funds, such as ETFs.
Sue Asci for Investment News reports that additional pressure to keep costs low is due to the mutual fund market-timing scandals of 2003. Many settlements with regulators included lowering their fees. And those companies not involved in the settlements followed suit to compete in the market.
However, many settlement agreements expire next year, and many are wondering if companies will raise their fees again. They would have to get board approval, but it is possible.
One reason for the popularity of ETFs is their lower fees, could an increase in mutual fund fees send investors into the arms of ETFs?
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.