The New Era of Low Expense Ratios
After the high mutual fund fees of 50 years ago there emerged a wave of no-load mutual funds that offered investors the opportunity to invest in mutual funds without devastating sales charges. For the last 40 or so years, led by Vanguard, investors have had increasing access to no load mutual funds with low expense ratios. In the last few years the reduction in expense ratios has been truly astounding. Investors will soon be able to select from hundreds of mutual funds and exchange traded funds offering equity market exposures with annual expense ratios of 10 or less basis points. Investors can now enjoy well diversified investing with incredibly low total expenses.
As the lowest expense ratios now are approaching a few basis points per year, it may be time to put the issue in perspective. Saving 1 basis points per year on a $10,000 investment is an annual savings of $1. So when it comes time to select a fund, investors may wish to look beyond the savings of a few basis points in annual expenses. While predicting total performance may be impossible, commission costs, convenience, tax efficiency, and other issues are predictable. Investors should be especially careful of mutual fund companies and brokerage firms that offer exceptionally low annual expense ratios on a few funds that serve as “loss leaders” in the hopes of charging high fees on other products and services.
Biltmore Capital Advisors is NOT an accounting firm. For specific advice regarding taxes, please consult your tax advisor.