Copyleft 2006. Michael Saville
Low amounts of fees and expenses.
Some investors choose mutual funds based only on their fees and expenses when looking for the best no-load fund. The reason for this is that investors can put more of their money to work if they choose mutual funds with low fees. Also, mutual funds that don't charge any fees and have low expense ratios will give more of the money they make back to their investors. Price/earnings ratio and dividend yield on the S&P 500 index, which is often used as a stand-in for the U.S. stock market, are not, however, at bargain prices. Several market experts think that domestic mutual funds will have annual returns in the single digits over the next ten years.
Is the best way to choose mutual funds to look for the ones with the lowest fees and expenses? Usually not. The answer depends on what kind of mutual fund you are looking at, how much time you have to look at and manage your mutual fund investments, and what kind of costs you will have to pay.
How to Invest in the Best Index Mutual Funds with No Fees.
If you think markets are usually efficient and want to invest in an index mutual fund to get a return similar to the index, it makes perfect sense to look for the best index mutual fund based on low fees and a low expense ratio. The portfolio manager of an index mutual fund tries to invest the fund's money so that it tracks an index as closely and cheaply as possible. Larger index funds have an advantage because their operating costs can be spread out over a larger amount of assets. Index mutual funds like the E*Trade S&P 500 Index Fund (Nasdaq: ETSPX), Fidelity Spartan 500 Index Fund (Nasdaq: FSMKX), and Vanguard 500 Index Fund (Nasdaq: VFINX), which have expense ratios of 0.09 percent, 0.10 percent, and 0.18 percent, respectively, are some of the more interesting options right now.
Actively managed mutual funds and strategies for investing in them.
If you think that active portfolio management can add value and beat the index, fees and expenses are just one of many important things to think about. The skills and style of the portfolio manager are just as important. So, looking for the best mutual fund just based on low fees and a low expense ratio might not always be the best way to go. Making sure your mutual fund looks out for your best interests.
Whether you like to index your investments or manage them yourself, it's a good idea to make sure that your mutual fund is putting your interests first. Different kinds of fees are charged by mutual funds. By looking at some key factors about fees, you can tell if the mutual fund is looking out for your best interests or just trying to make money for the mutual fund company.
Serve the Long-Term Interests of Shareholders - Some mutual funds charge fees for short-term trades to stop people from selling and buying mutual fund shares too often. Frequent trading makes it harder to run the mutual fund well and raises the costs of running it. So, a short-term trading fee can be good for long-term shareholders if the mutual fund company handles the fee in the right way.
Savings from economies of scale are passed on to investors. A mutual fund's operating costs are a mix of fixed and variable costs. As a mutual fund's assets grow, the fixed costs are spread out over a larger base of assets. So, the percentage of the mutual fund's assets that goes toward operating costs should go down over time.
A mutual fund that puts its investors' needs first must give its investors the savings that come from economies of scale. So, a mutual fund's fiduciary responsibility can be measured by how the expense ratio has changed over time.
