What sort of expense ratios are you paying for your investing portfolio? Do you have any idea what you should be paying for the convenience of holding your hard-earned money in a particular fund?
An expense ratio is the fee you pay to be able to invest your money in that fund. Those fees can seem very low—think somewhere around 1%. But while 1% may not seem like a lot, remember that the fee is taken every year your investment sits (and hopefully grows a lot). Because the fee is automatically taken from your investment—you don’t get a bill for the tab—you aren’t always aware of what you’re paying in exchange for putting your money in a fund.
What’s a normal expense ratio?
A few rules of thumb to get you started:
- Bigger companies typically charge lower fees than smaller ones.
- Passively managed funds will have lower fees than actively managed funds.
- Expense ratios for mutual funds are usually higher than for ETFs.
- Strive to pack your portfolio with funds that have fees of 0.25% or less.
Here are average fees, from the Investment Company Institute report on 2018fee trends:
- Equity mutual funds: 0.55%
- Hybrid mutual funds: 0.66%
- Bond mutual funds: 0.48%
- Target date mutual funds: 0.40%
- Money market funds: 0.26%
You won’t find your fund’s fees on your statement, but if you log into your account and select the name of each fund, you’ll be able to view a summary of your fees. If you want to check fees for a fund you haven’t invested in yet, a web search for the name of the fund will reveal details—including fees.