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BVC #23: Your Mutual Fund May Be Ripping You Off [VIDEO]

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When it comes to investing, you can’t predict the future. What you can predict, with 100% certainty, is how much your broker is going to charge to get you there. If you’re like me, the majority of your stock market investments are in mutual funds in retirement accounts like 401(k)s, 403(b)s, and IRAs. While we can’t control how they will perform, we can be smart about where we invest by picking good funds with reasonable costs.

In this video, I look at some index funds, the easiest type of fund to compare, and how picking a low cost one can make a huge difference in your retirement nest egg.

Bargaineering #23: Your Mutual Fund May Be Ripping You Off from JIM WANG on Vimeo.



The expensive S&P index fund cited in the video is the Rydex S&P 500 (RYSYX) with an expense ratio of 2.28% and a deferred sales load of 1.00%. The cheapest funds, I mentioned Schwab (SWPPX), Fidelity (FSMKX), and Vanguard (VFINX), are all listed on my cheapest S&P 500 index fund.

One final note, all index funds are not created equal. Could it be that Rydex is giving something extra for an expense ratio ten times greater than the big brokers? No.

This post is part of the Bargaineering Annual Financial Review week series where we take a closer look at the four major facets of personal finance and see if we can do better. This post is part of day three – taking a closer look at your investments.

Despite Rydex’s much higher expense ratio, you don’t get much for it. If you look at this screenshot of Morningstar’s Fund Comparison tool, the returns aren’t exactly equal. The YTD Return (%) figure on the table already accounts for the expense ratios (which is why the Rydex YTD is so much lower).

Morningstar S&P 500 Index Fund Comparison

After you compare pre-expense ratio YTD returns, Rydex beats the three others by less than a quarter of a percent. Oh, and the YTD doesn’t include the 1.00% deferred sales load or the fact that they are Class C shares.

To put the expense ratio into perspective, none of the funds on Money Magazine’s list of the 70 best mutual funds of 2009 has an expense ratio over 1.50%, which include actively managed funds.

Research your funds, it could cost you hundreds of thousands of dollars.

Finally, big thanks to Intuit and TurboTax for supporting Bargaineering and sponsoring this video. If you’re on Twitter, I invite you to follow @TurboTax for more information on tax and product news straight from the experts.

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15 Responses to “BVC #23: Your Mutual Fund May Be Ripping You Off [VIDEO]”

  1. jsbrendog says:

    vanguard. oh howi wish my company’s crummy 401(k) was held there and/or had good funds. sigh.

  2. Chris says:

    Beware of recommended funds sold to you by CFP’s as many of these often come with hefty load fees.

  3. Ralph says:

    Excellent information. I have even left the index mutual funds for the even less expensive index exchange traded funds (mostly Vanguard’s ETFs) This coupled with a very conservative economy/market timing strategy has worked well. Have others looked at this strategy?

  4. Mike Piper says:

    I’m a diehard index fund (or ETF) fan.

    Regarding that 2% expense ratio on the S&P fund: I just wrote today about how 2% in annual investment expenses could literally double the amount you need saved in order to retire. Yikes!

  5. eric says:

    It’s one of those very important fees to keep track of but a lot of people have no clue about it.

  6. aua868s says:

    i have been a vanguard fan all through…got to look into fidelity now, especially that they manage my new workplace’s 401k

    • saladdin says:

      It’s their initial investment amount that gets most average folks who are starting out. I can only recall one of their funds that require less then 3k to start. That’s why TR Price is nice for starting investors.

      saladdin

      • daenyll says:

        I currently have a T. Rowe Price target date fund, it’s done fairly well even with the crappy markets and was great with the low startup minimums. I’m only 24 and haven’t had a chance to put much away, nor pay much attention to it, due to grad school but it’s a start. And they seemed to have low fees for the target date funds.

        • saladdin says:

          That’s how I got started. Didn’t have a lot of money and with Price if you do their automatic draft for $50 you can start, no need to wait.

          saladdin

  7. Bill says:

    RYDEX is not a trade able symbol and if you used an aggregate feed that averaged the fees of the company’s etf’s, you missed the fact that trading on non us markets cost a lot more.

  8. FlyFisher says:

    Sneaky sneaky fees. With big $ that can add up quick.

  9. Good video. Bottom line: you have to be careful before investing in certain mutual funds/index funds.


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