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Money Leaks: Mutual Fund Fees

I’ve always said that when it comes to investing, there’s only one thing you can control – your costs. You can’t control whether your mutual fund or your stocks will go up or down, but you can control how much you pay for each transaction. By doing a little bit of homework up front, you can make sure that more of your money works for you and less goes into the pocket of the broker holding onto your cash and shares.

Fortunately for all of us, brokers and mutual fund companies are compelled to disclose these fees and expenses in a very up front way. By doing a little bit of homework, you can easily compare different funds on the basis of cost to help you make a decision on where to invest.

This is the latest edition of our Money Leaks [3] series.

There are two types of mutual fund fees [4] you need to look at:

The easiest comparisons are index funds. In theory, index funds try to match the index they are based on and are generally very close. The differences come from the speediness of a fund’s reaction to change. That explains why the returns on supposedly identical index funds may be different. Since all things are supposed to be equal, it’s easy to compare index funds from different companies to find the best one for you. Fidelity’s Spartan 500 Index [5] has an expense ratio of 0.10% with no load. Vanguard’s 500 Index Investor fund [6] has an expense ratio of 0.17% with no load. All else being equal, Fidelity’s is a more affordable option if you can manage the $10,000 minimum (versus a $3,000 minimum at Vanguard).

So, the next time you go to invest in a mutual fund, be sure to check the fees and ensure you aren’t overpaying for the same product!