While open-end mutual fund providers are engaged in a price war, exchange traded fund sponsors with passively indexed products have also slashed fees and offer some of the cheapest investments around.
According to the Investment Company Institute, the average stock mutual fund had a 0.79% fee in 2011 and the average bond fund came with a 0.62% price tag, reports Jack Hough for The Wall Street Journal. In comparison, the average ETF fee clocks in at 0.55%.
ICI calculates that on a $100,000 portfolio earning 5% a year, every 0.1% in fees translates to $1,600 in lost returns over a 10-year period.
Investors trying to limit costs may want to consider a few factors before committing to a fund product.
For starters, one should decide on an appropriate asset allocation based on the individual’s time horizon and investment preferences. If you are an aggressive investor, your investment portfolio would mainly consist of diversified stocks and a small portion in fixed income, whereas if you are a conservative investor, your portfolio will have a heavier tilt toward fixed-income assets.