Tags: index | funds | fees | expenses

Beware: Index Funds Don't Always Carry Low Fees

Tuesday, 07 May 2013 07:53 AM

By Dan Weil

A large part of the attraction of index mutual funds and exchange-traded funds (ETFs) is their low fees.

But not all these funds are cheap, writes The Wall Street Journal's Joe Light.

Overall, fund fees are coming down, and you can thank the index funds for that, he says.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

Stock-fund expenses averaged 0.77 percent last year, down from 0.79 percent in 2011 and 1 percent 10 years ago, according to the Investment Company Institute.

But there are still discrepancies. For example, the Vanguard 500 Index Fund carries expenses of 0.05 percent if you put in at least $10,000.

But at least 25 other funds that track the Standard & Poor's 500 Index like Vanguard's does have expenses of 0.5 percent or more, and a few actually charge more than 1 percent.

"It's embarrassing to have them out there," Rick Ferri, founder of investment manager Portfolio Solutions in Troy, Mich., tells The Journal. "Some investors are really getting ripped off, without a doubt."

That means you have to pay close attention to expenses when you're deciding whether to buy an index mutual fund or ETF.

Many experts recommend shying away from actively managed mutual funds, because of their under-performance.

But Roger Wohlner, a financial adviser at Asset Strategy Consultants in Arlington Heights, Ill., sees some value in actively managed funds.

"While actively managed mutual funds get a lot of criticism for seldom beating their index benchmarks, there are still plenty of well-managed, reasonably priced funds across equity and fixed-income styles," he writes on Morningstar.com.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

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