mutual fund fees

[vttlarry]

I mentioned in an earlier post that I am looking at rolling over a 401k and cash balance plan to an IRA.

Can someone address the issue of mutual fund fees? Recent articles have addressed how other costs, such as brokerage commissions, bid/ask spreads and opportunity and market impact costs can all add to the expenses that are NOT including in the expense ratio.

Even with lower fees from Vanguard, they are still .31 for one fund I was looking at. With 200K invested, plus other fees, that can start to add up. I had been looking at purchasing a bundle of blue chip, dividend paying stocks (15). At $7 a trade, it starts to look at lot cheaper than all the fees.

Anyway, comments and suggestions , please. Thanks.

 

[panacea]

ETFs and Vanguard funds are about as cheap as you can get. Sure, you could save money by picking your own stocks but IMO that can be pretty difficult... actually, not too difficult to know when to buy but difficult to know when to sell. Also, to get a diversified portfolio, you'd have to keep an eye on 20-25 stocks, or more.

 

[vttlarry]

true, but the fees are hard to understand. They don't list them anywhere that I can see. They tell you what the expense ratio is, but then just deduct any fees from (hopefully) your gains, so you do not actually see what it is costing you.

Individual stocks are quite risky, agreed.

 

[Midpack]

The Real Cost Of Owning A Mutual Fund - Forbes.com

http://www.cbsnews.com/8301-505123_162-37742911/ric-edelman-accuses-vanguard-of-hiding-fees/

While there are some transaction costs within mutual funds, most of them can't be avoided. IOW, you'll have brokers commissions plus turnover and spread costs if you buy individual stocks too. Turnover costs are relatively low for index funds vs active funds too.

Comparing your actual returns to benchmarks gives you a good idea what the drag due to all fees are, reported expenses and any other fees.

 

[ChadR]

The Real Cost Of Owning A Mutual Fund - Forbes.com

Ric Edelman Accuses Vanguard of Hiding Fees - CBS News

While there are some transaction costs within mutual funds, most of them can't be avoided. IOW, you'll have brokers commissions plus turnover and spread costs if you buy individual stocks too. Turnover costs are relatively low for index funds vs active funds too.

Comparing your actual returns to benchmarks gives you a good idea what the drag due to all fees are, reported expenses and any other fees.

Thanks for the link. I've heard others rail against mutual funds (even low cost index funds) due to hidden fees but now better understand their complaints.

EDIT: Hmm I realized you added to your post. That follow up link and comparing index funds vs the index is very helpful as well. Thanks

 

[vttlarry]

Thanks Midpack. Your point is well taken that when you buy MF's, that is what you have to pay. At my age, it would be a gamble to take that leap to individual stocks, but it is a little frustrating that finding out what something you have bought (MF) has actually cost you is not only hard, it may be impossible. If the total is around 1% or so, I guess that is not a deal breaker.

 

[Animorph]

Fund performance figures are net of all fees and expenses, so they are not exactly hidden. I believe in some periods Vanguard was actually able to match the S&P 500 exactly (no drag) by using a few tricks of their own. As with any fund, compare with a similar index or with your alternate investment choice and see which one does better.

A lot of work researching and tracking just 20 stocks just to save 0.10% in expenses. I'd rather be retired. Not that I don't do the same with my mutual funds/ETF's.

 

[pb4uski]

I think the reasoning that commissions, bid/ask spreads, et al are NOT included in the expense ratio because they would be the same for an investor investing in that portfolio of stocks. The ER captures the incremental costs of the mutual fund form over investing in the same portfolio individually.

Those other costs are reasonably available if one cares to dive into the financial statements of the fund. but hardly anyone does that.

 

[Midpack]

Fund performance figures are net of all fees and expenses, so they are not exactly hidden.

That's the most important lesson IMO. You (mostly) can't avoid the expenses buying individual stocks so knowing the "hidden" fees does what?

I think the reasoning that commissions, bid/ask spreads, et al are NOT included in the expense ratio because they would be the same for an investor investing in that portfolio of stocks.

Mostly true. You'll pay commissions (although presumably lower for funds) and spread costs, but individual investors don't have to deal with market impact costs (defined in first link post #4 above)? Turnover is probably the most variable source of "hidden" fees, another reason index funds have much less commission drag than active funds. Not only do index funds have lower published expense ratios, they should have lower "hidden" fees by virtue of many fewer trades and associated commissions, spread costs, etc.

I think...

 

[Bestwifeever]

This article was in this morning's paper:

401(k) fees could reduce average nest egg by 30%, study says - latimes.com

The average U.S. couple could pay nearly $155,000 in fees for their 401(k) plans over their careers, according to the analysis by Demos, a nonpartisan research organization.

Of course:

The mutual fund industry and some independent experts disputed the findings of the study, saying it overstated the costs that most Americans incur.

 

[Midpack]

This article was in this morning's paper:
401(k) fees could reduce average nest egg by 30%, study says - latimes.com

As usual, the devil is in the details...not necessarily as bad as the LA Times "headline." This appears to be the LA Times source though they weren't very forthright about disclosing it...

The Retirement Savings Drain: Hidden & Excessive Costs of 401(k)s | Demos

And this chart might provide some general reassurance to the broader thread topic. The published expense ratios do include many of the fee types, and those "hidden" in trading costs ** also reduce returns on individual stocks. IOW trading costs are not in addition for mutual funds, you're going to pay them however you buy/sell stock.

** they did omit market impact costs which are usually unique to mutual funds vs individual investors shares of stock​

 

[Birchwood]

I've done both for years and each have their own different flavor.
I have abunch of blue chips and if your have 20, about 2 will tank or die and a few will be be laggers, and a few big winners. In reality the 18 are just moving into their own cycle and be OK depending o when you look at it.

With MF, it follows the Index so you can actually see it go thru the same cycle.

There will always transaction fees that are unavoidable.

I've notice that in the very long time, the important point is actually letting it stay there, and hoping that when you needd the money, the price is up!

 

[vttlarry]

Birchwood: that probably sums it up the best.

Thanks to all for the helpful comments.