This Type of Mutual Fund Offers Way More Bang for Your Buck

Photo by NATALIA61 / Shutterstock.com

By at least one measure, we are living in perhaps the greatest time to be an investor or saver.

Mutual fund costs have hit an all-time low, according to a new study by Morningstar, an investment research company.

Study author Patricia Oey, a senior analyst at Morningstar, writes:

“This is a positive trend, as mutual fund costs have a dollar-for-dollar impact on the returns investors ultimately realize.”

Morningstar examined mutual fund expense ratios. As we explain further in “Money Lingo You Need to Know for Financial Survival,” an expense ratio is a measure of the cost of owning shares of a mutual fund.

The average mutual fund expense ratio dropped as low as ever last year, the study found:

  • 2016: The asset-weighted average expense ratio of mutual funds was 0.57 percent.
  • 2015: 0.61 percent
  • 2014: 0.65 percent

Oey attributes this trend to “strong investor demand for lower-cost funds.”

While mutual fund costs are down overall, there is still a significant difference between the costs for actively managed mutual funds and the costs for passively managed mutual funds, also called index funds. See “Warren Buffett’s Sane and Simple Retirement Investing Plan” for more on the difference between actively managed funds and index funds.

Morningstar found that the average expense ratio of actively managed funds was 0.75 percent last year, a drop of 6 basis points from 2013. But the average expense ratio of index funds was 0.17 percent — a drop of 19 basis points from 2013.

In other words, the average actively managed fund is more than four times more costly than the average index fund.

As we reported in “Why All Investors — Even the President– Should Consider Index Funds,” the lower costs of index funds is why investors have been moving their money out of actively managed funds and into index funds in droves.

To learn more about investing in mutual funds like index funds, check out:

What’s your take on this trend? Share your thoughts below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
25 Things You Should Never Buy — and What to Buy Instead

If you really want to save money, become a more intentional shopper.

7 Ways Coupons Waste Your Money and Time

Here’s why I hung up my scissors and quit clipping coupons.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

13 Brilliant Bulk-Buy Items on Amazon

Every household should have these products on hand. Buying them in bulk on Amazon saves you cash.

7 Gadgets Under $60 That Can Boost Your Health

These Amazon finds can help ease foot aches, boost energy and even protect your heart.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

9 Things You Should Never Leave in a Car

Thinking of leaving these possessions in a car? Prepare for unexpected consequences.

9 Mistakes People Make When Cleaning With Vinegar

Cleaning with vinegar can save you a lot of money, but using it like this can cost you.

13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

10 Things Successful Retirees Do Differently

These habits and characteristics can help put you on the track to success.

7 Costly Health Problems That Strike After Age 50

As we age, our bodies wear down. Here is how to cut costs associated with some common ailments.

29 Purchases That Can Save You Money Every Day

Sometimes, you’ve got to spend to save.

Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

7 Things I Never Buy at Costco

A bulk buy isn’t always the best buy.

5 Tax Mistakes to Avoid in Retirement

Even great savers can reduce their retirement income by making these mistakes.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.