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 2018 fee 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.