|
Author: Catie Fitzgerald Article source: http://www.askfinancing.com/. Used with author's permission.
If you think mutual fund performance is the whole story, watch out! You could make a very expensive mistake by not considering the costs of a mutual fund! The lower a fund's costs, the higher percentage of your fund's real return you receive. You can control what you pay to invest by selecting low cost mutual funds.
Mutual fund costs come in two flavors:
Shareholder Fees
You pay these fees directly out of your own pocket to purchase, redeem, or exchange shares. The following shareholder fees will appear in the "Fee and Expenses" section of a mutual fund's prospectus:
- Sales Charge on Purchases -- Also called a "Load", this fee is expressed as a percentage of the dollars invested
- Purchase Fee -- Usually replaces the sales charge / load. This fee appears as a flat dollar charge for making a purchase regardless of the investment amount
- Sales Charge on Reinvested Dividends -- Similar to the "Load" on purchases, this fee is expressed as a percentage of dollars reinvested
- Redemption Fee -- Charged at the time of selling shares of the fund. Expressed as a percentage of the dollars invested or a flat dollar amount
- Account Maintenance Fee -- A flat dollar amount charged if your account value falls under a specified minimum balance
Annual Operating Expenses
These expenses get deducted from the Fund's assets before the management firm calculates return numbers.
- Management Fee -- This fee gets paid to the team that makes all the investment decisions. Out of this fee, the fund management pays for trading costs so you won't see commissions detailed in the expense section of the prospectus.
- 12b-1 Distribution Fee -- This fee covers the costs of advertising and selling the fund. These fees are "ongoing", meaning they never go away for as long as you own the fund. They can have a significant negative impact on the cost of a fund.
- Other Expenses -- This includes the cost of daily administration of the fund such as issuing annual reports, maintaining office space, etc.
How much you should expect to pay depends upon the mutual fund category. Each category has it's own average annual expense ratio. For instance , it costs more to run an international fund than a domestic. Bond funds cost less to run than equity funds. To find out the category's average expense ratio, go to Morningstar and view the report for the fund you're considering purchasing (simply input the fund's symbol in the "Quote" box and hit "enter") once the report appears, go to the "Fees and Expenses". The category average expense ratio appears in the "Actual Fees" section on the right.
All things being equal (i.e., risk, performance, etc.), you want to select mutual funds that have low expense ratios relative to other funds in the same category. You can compare the cost of various funds for free by using Vanguard's Cost Comparison tool or the Morningstar Fund Compare. If you have a membership at Morningstar, check out the Cost Analyzer found in the Morningstar Tools section (right
side of the page).
Financially Savvy provides the information in this article for educational purposes only and it does not constitute investment advice either given or implied. Before making any investments or pursuing any money management technique, always consult your CPA for tax implications and your financial advisor to understand how such changes will impact your long-term plan. About the Author:
Catie Fitzgerald is a 10+ years veteran of the money management profession and the founder of http://www.financiallysavvy.com. Financially Savvy provides investors with the education and resources necessary to gain confidence in making their own financial decisions. We offer a variety of educational venues including classroom sessions, one-on-one coaching, and online resources.
Gauge Crochet
Gauge is the number of stitches per inch and the number of rows per inch produced when working with a particular size of yarn and a specific hook.
Career Change and Risk: It Can Lead to Greater Success in the Workplace
Discover three small steps you can take right now to improve your career satisfaction. Hear about what others have done that will inspire you to do what you can...
The Folly of Diet Recipes
The paradox of concentrating on food while trying to lose weight is considered in view of the tendency of diets to direct us toward recipes and new tastes when ...
Five Secrets to Playing in the New Age Style
Describes an intuitive approach to piano playing.
Why Hire A Wedding Designer?
As couples begin thinking about their wedding, they are often confused over how much to spend, where to obtain specialized services, and how to choose vendors. ...
Going Halfway Around the World: How to Make German Cookies
I absolutely loved experimenting with foreign recipes, especially dessert recipes, when I was in high school. One of my favorite ones to make is German Cookies....
A Barking Dog is a Pain!
How do you get your dog to stop barking? After all, who likes a constantly barking dog? The only time I want a dog barking is when people drive up or to keep ...
Take Back Your Life 7
In parts 1-6 of this series of articles titled "Take Back Your Life", we discussed what could be considered the four wheels of the human wellness vehicle. We di...
Teak Garden Furniture: A Natural Extension of the Home
In the past, the garden has traditionally been a separate entity, with wrought iron or plastic furniture dotting the landscape in no particular design pattern. ...
The Top 10 Ways to Market your Business or Professional Practice Without Networking
While focused, strategic networking is usually the most efficient way to build your professional practice, there are many other ways to market your business. Pe...
Wood-Burning Stoves: Timeless Classics
Traditionally, wood-burning freestanding stoves were used in ski cabins and lodges, but today thanks to new design concepts they have become a welcome addition ...
Selecting the Right Air Compressor for Your Air Tool
Different air tools require different features from an air compressor. The following is a quick buying guide for selecting the right air compressor for your air...
The Secret of Pushing the Pass Line
Professional gamblers can get better odds than casual gamblers when they play craps. They just know how to ask properly, and they get to "push the house."
How A Simple Golf Stretch Can Add 20 Yards To Your Drives
To quickly improve your golf, stretch your golf muscles regularly! What's the difference between a "golf stretch" and an everyday stretch? The answer to this ...
The Myth of the Management Team
A business has a lifespan that is severly reduced if it doesn't learn how to succeed. Much like a child if it didn't learn as it developed what would it end up ...
Wedding Speech
Generally, there are three main speeches in a wedding reception. The first is the father's speech, something that most of us forget. Secondly will be the brideg...
Swimsuits and Protecting Your Skin
The summer approaches and you feel it's time to get a great tan this time...
How I Get More Training Done On My Horses In 1/2 The Time
We are all pressed for time, seems there is just not enough
of it. There is the job, family duties, maybe social
events, all competing for our time. Our horse...
Dual Pane Window Glass Repair
Learn how to repair dual pane window glass.
Are Fruits Making You FAT?
That glass of orange juice in the morning, the banana and apple for snakes, and the fruit salad for lunch, might actually be what is stopping you from losing th...
40 Days and 40 Nights
About finding your way back to spirituality...
Sell Your California Home For Top Dollar
Learn why some homes sell quickly and for over asking price. Discover how you can position yourself to sell for the highest possible price...
Motivation: The Cure for Complacency
There's nothing wrong with feeling content. It's something that we all strive for in life. The problem comes, as you have so well stated, when we drift from con...
The Top Sellers On eBay & What We Can Learn From Them
It's hard to believe that eBay's top sellers could start every single auction at the paltry sum of only one cent. But this model has worked for years and offers...
|
Print this page