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Frugality and Index Fund Fees

Posted By Jim On 01/28/2006 @ 10:11 am In Frugal Living,Investing,Personal Finance | 10 Comments

The topic of index fund fee rates usually enters the discussion of index funds because usually that’s the only difference between the funds (since the contents are dictated by the index the fund is matching), but why should it matter if you pay 1% or 0.8% or 0.5%? On $10,000, the difference between 1% and 0.8% is a mere $20 a year! So what’s the big deal?

Well the big deal is if you had a choice of buying a book for $20 or $19.99, which one would you pick? It’s a mere penny difference, that’s 0.05%, and I’d be willing to bet that you’d pick the $19.99 every single time without fail. Why? It makes no sense to pay $20 when $19.99 can get you the exact same product – think of the index funds in the same way and those fees look expensive, regardless of their actual cost.

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