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

Posted By Jim On 12/02/2009 @ 10:09 am In Investing | 15 Comments

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 [3] from JIM WANG [4] on Vimeo [5].



The expensive S&P index fund cited in the video is the Rydex S&P 500 (RYSYX [6]) with an expense ratio of 2.28% and a deferred sales load of 1.00%. The cheapest funds, I mentioned Schwab (SWPPX [7]), Fidelity (FSMKX [8]), and Vanguard (VFINX [9]), 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 [10] 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 [11], 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).

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 [12].

To put the expense ratio into perspective, none of the funds on Money Magazine’s list of the 70 best mutual funds of 2009 [13] 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 [14] for more information on tax and product news straight from the experts.


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URLs in this post:

[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/your-mutual-fund-may-be-ripping-you-off.html

[3] Bargaineering #23: Your Mutual Fund May Be Ripping You Off: http://vimeo.com/7783381

[4] JIM WANG: http://vimeo.com/user1838946

[5] Vimeo: http://vimeo.com

[6] RYSYX: http://www.google.com/finance?q=RYSYX

[7] SWPPX: http://www.google.com/finance?q=SWPPX

[8] FSMKX: http://www.google.com/finance?q=FSMKX

[9] VFINX: http://www.google.com/finance?q=VFINX

[10] Bargaineering Annual Financial Review: http://www.bargaineering.com/articles/bargaineering-2009-annual-financial-review-week.html

[11] Morningstar’s Fund Comparison tool: http://screen.morningstar.com/Compare/Fund/FundCompare.html

[12] Class C shares: http://www.sec.gov/answers/mfclass.htm

[13] Money Magazine’s list of the 70 best mutual funds of 2009: http://money.cnn.com/magazines/moneymag/bestfunds/2009/

[14] @TurboTax: http://twitter.com/turbotax

Thank you for reading!