Investing in Mutual Funds? Consider Expense Ratios Before You Buy!
Investing in the stock market has become increasingly popular over the years, with more and more people looking to grow their wealth through various investment options. Mutual funds have been a go-to for many investors looking for a diversified portfolio without having to put in too much effort.
One of the important factors that investors need to consider when investing in mutual funds is the expense ratio. This fee covers the costs associated with managing and operating the fund, including administrative expenses, marketing expenses, and management fees. The expense ratio is typically expressed as an annual percentage of a fund’s assets under management.
Historically speaking, there has been a lot of variation in expense ratios among popular mutual funds. Some funds charge exorbitant fees while others are relatively inexpensive. In this article, we will take a closer look at some of these historical expense ratios so that investors can make informed decisions about which funds to invest in.
Vanguard 500 Index Fund (VFINX)
The Vanguard 500 Index Fund (VFINX) was created by John Bogle in 1976 and is one of the largest index mutual funds available today. It tracks the performance of the S&P 500 index and has a long history of low expense ratios. In fact, VFINX was one of the first index funds to offer low-cost investing to retail investors.
Over its long history, VFINX has consistently kept its expenses low relative to other mutual funds. At inception in 1976, it charged an expense ratio of just 0.43%. By comparison, similar actively managed equity mutual funds had an average expense ratio closer to 1%.
Today, investors can purchase shares of VFINX for an expense ratio as low as .14%, which means that only $14 per year would be paid on every $10k invested – making it one of cheapest large-cap US equity mutual fund offerings currently available.
Fidelity Contrafund (FCNTX)
Fidelity Contrafund (FCNTX) is an actively managed mutual fund that invests in large-cap stocks. The fund was established in 1967 and has a long history of strong performance, despite its somewhat higher expense ratio.
The fund’s expense ratio started at 0.96% when it was first launched, which may seem high by today’s standards but was not uncommon for active funds during that time period. However, the fee has come down slightly over the years to its current level of 0.85%.
While this may still be considered on the higher side compared to some index funds or ETFs like VFINX, FCNTX offers investors access to one of the most successful active managers in Peter Lynch who ran the Contrafund from 1977-1990.
American Funds Growth Fund of America (AGTHX)
American Funds Growth Fund of America (AGTHX) is another popular actively managed mutual fund that invests primarily in large-cap growth stocks. It has been around since 1958 and has a strong track record of outperforming its benchmark over long periods.
When AGTHX was first launched, it charged an expense ratio of just 0.67%, which was relatively low for an equity mutual fund at that time period. Today, however, its fees are slightly higher than average at .64%. While this might seem expensive relative to some passive options available today such as VFINX or even FZROZ which carries no expenses whatsoever – AGTHX does offer investors exposure to some top-performing companies across various sectors with experienced investment professionals making decisions about where their money goes.
Vanguard Total Bond Market Index Fund (VBTLX)
For those looking for exposure to U.S bonds via a low-cost index product VBTLX could be your answer. This Vanguard offering tracks the Bloomberg Barclays US Aggregate Float Adjusted Index and provides broad-market exposure to investment-grade bonds. With an expense ratio of just .05%, it is one of the lowest-cost bond funds available.
When VBTLX was launched in 1996, its expense ratio was 0.20%. However, over time as Vanguard’s popularity grew and they became more efficient with their operations, the fee has steadily come down to its current level – making it an even more attractive option for those looking for low-cost bond exposure.
Conclusion
When it comes to investing in mutual funds, understanding expenses is crucial. Historically speaking there have been a wide range of fees associated with popular mutual funds which can greatly impact returns over time.
The good news is that today investors have access to some incredibly low-cost options like VFINX or VBTLX which offer broad-market exposure at rock-bottom prices. While actively managed equity funds such as FCNTX and AGTHX may carry higher fees they may still be worth considering for those looking for experienced portfolio management.
Ultimately, no matter what type of fund you invest in make sure you understand how much it will cost you before putting any money into it – because every dollar spent on expenses is a dollar not working towards your investment goals.