This Type of Investment Just Keeps Getting Cheaper

Excited businesswoman with cash
Photo by Asier Romero / Shutterstock.com

The rewards continue to pile up for anyone who has the discipline and determination to save for retirement.

Mutual fund fees fell to a new record low in 2019, Morningstar reports.

The asset-weighted average expense ratio reached an all-time low of 0.45% last year — down from 0.48% in 2018.

That’s a 6% decline from 2018 to 2019, according to Morningstar’s latest annual study of mutual fund fees. It is also the third-largest year-over-year percentage decrease recorded since 1991.

Passively managed mutual funds, aka index funds, continue to be far cheaper than their actively managed counterparts, on average.

According to Morningstar, the asset-weighted average fee for:

  • Passively managed funds fell from 0.14% in 2018 to 0.13% in 2019
  • Actively managed funds fell from 0.68% in 2018 to 0.66% in 2019

Money Talks News founder Stacy Johnson further details the advantages of index funds in “Are Actively Managed Mutual Funds Better Than Index Funds?

What is an expense ratio?

An expense ratio is a measure of the cost of owning shares of a mutual fund. Morningstar says it examines asset-weighted average expense ratios because they are more reflective of what investors paid than simple average expense ratios.

The drop in mutual fund costs is a huge boon for retirement investors. According to Morningstar, investors saved nearly $6 billion in fund fees in 2019 alone because of this trend.

Ben Johnson, Morningstar’s director of ETF and passive strategies research, explains:

“Investors are increasingly aware of the importance of minimizing investment costs, which has led them towards lower-cost funds and share classes. There has also been intensifying competition among asset managers, who have cut fees to appeal to cost-conscious investors.”

Morningstar notes that the asset-weighted average expense ratio for mutual funds has been falling for two decades now.

In fact, investors paid nearly half as much to own funds in 2019 as they did in 1999 — when the asset-weighted average expense ratio of all U.S. open-end funds and exchange-traded funds was 0.87%.

Why lower fees matter

All of this is remarkably good news for your retirement nest egg. As we detail in “Of All the Fees You Pay, This Is the Worst,” just a 1% difference in investment expenses can cost you hundreds of thousands of dollars in lost savings over time.

Lower fees mean millions more Americans will enjoy the retirement of their dreams. So, as the good news continues to pour in, maybe it’s time to take a moment and give thanks to John Bogle, the legendary founder of Vanguard Group.

To find out more about the debt all investors owe to Bogle — who died last year — check out “Investing Pioneer Showed Us How Fees Rob Our Retirement Funds.”

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
7 Ways Coupons Waste Your Money and Time
7 Ways Coupons Waste Your Money and Time

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

33 Home Upgrades That Cost Less Than $100
33 Home Upgrades That Cost Less Than $100

A little money goes a long way with these imaginative projects. You can do most of them yourself.

7 Gadgets Under $60 That Can Boost Your Health
7 Gadgets Under $60 That Can Boost Your Health

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

10 Things That Really Are Free on Amazon
10 Things That Really Are Free on Amazon

These freebies are available to anyone — no Prime membership necessary.

Don’t Pay for These 10 Things: They Are Free With a Library Card
Don’t Pay for These 10 Things: They Are Free With a Library Card

Before you spend another dollar on items and services like these, check with your public library.

View this page without ads

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

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

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

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

Eat This Food If You Want to Avoid Alzheimer’s Disease
Eat This Food If You Want to Avoid Alzheimer’s Disease

One type of food associated with the Mediterranean diet offers especially large benefits.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

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

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

15 Outrageously Overpriced Products — and How to Save on Them
15 Outrageously Overpriced Products — and How to Save on Them

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

Why Half of Retirees Now Owe Taxes on Social Security
Why Half of Retirees Now Owe Taxes on Social Security

Growing numbers of seniors are paying taxes on their Social Security benefits, but you might be able to avoid this fate.

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.