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Vanguard is Still the Leader in Low-cost Mutual Fund Investing
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Vanguard still offers the lowest management fees for people who are interested in investing in mutual funds. The new data published by Morningstar shows that Vanguard was the best choice in terms of expense ratio in 2019.
Timestamps:
========================================================
0:30 Intro
1:06 #1 What Are Mutual Funds?
3:00 #2 What Is an Expense Ratio?
4:32 #3 Low-Cost Mutual Funds
#stockmarket #stocks #finance #business #news #money #stimulus
#stock #trading #market #investing #equity #analysis #financing #credit #business #money
References:
========================================================
Link to the Morningstar report:
Summary:
==================================================
If you are among the millions of Americans who contribute to a 401(k) plan, you are very likely investing in mutual funds. Mutual funds are the most common investment options offered in 401(k) plans. Therefore, you should know how much investing in different mutual funds cost you so that you can pick the best for your future.
What is a Mutual Fund?
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.
A prospectus is a formal document that provides details about the investment objective of the mutual fund. For example, if you are planning to retire in 2040, you might decide to invest in a mutual fund managed by say Vanguard that aims at offering the best returns for people like you who are also planning to retire in 2040. As another example, you might want to choose a mutual fund that is more aggressive or more conservative in their investment strategy.
Since mutual funds are actively managed by professional money managers, they usually charge you a fee to cover the operational costs of running the fund. Therefore, when deciding to choose which mutual fund to invest in, it is critical to know how much these operational costs are.
That brings us to the definition of Expense Ratio (ER) or Management Fee.
What Is an Expense Ratio (ER)?
An expense ratio (ER), also sometimes known as the management fee, measures how much of a fund's assets are used for administrative and other operating expenses. An expense ratio is determined by dividing a fund's operating expenses by the average dollar value of its assets under management (AUM). Operating expenses reduce the fund's assets, thereby reducing the return to investors.
It is easier to demonstrate this using an example. Say, you have invested in a mutual fund that returns 7% on average that is without taking into account operating expenses of the fund. Also assume that the fund has an expense ratio or management fee of 0.5%. This means that your total gain is going to be 7% - 0.5% = 6.5% after paying the fees. Expense ratio or management fees are usually expressed in percentage. You can always find out how much the expense ratio of the mutual funds you have invested in by looking at your 401K statements.
Best Low Cost Mutual Fund Options?
You can save a ton of money by identifying the right mutual funds to invest in. The higher the expense ratio, the more you are going to pay over time in management fees. The difference might not seem that big of a deal at first, but over time they add up to a significant chunk of money.
In general, larger investment management firms offer better rates because they benefit from the economy of scale. However, you will find wide variations even among management fees charged by large firms. A great place to identify the most cost effective mutual funds is a website called Morningstar. They also publish a report where they rank top investment management firms based on their management fees. I have borrowed this data from their latest report. I will add the link in the description box so that you can access it as well.
As you can see in this chart, Vanguard offers the best expense ratio when it comes to mutual funds. Note that this is their average rate. Since Vanguard offers a large variety of mutual funds with different objectives, the management fee on different mutual funds are going to vary. However, this chart provides a great baseline to inform your investment decisions.
Timestamps:
========================================================
0:30 Intro
1:06 #1 What Are Mutual Funds?
3:00 #2 What Is an Expense Ratio?
4:32 #3 Low-Cost Mutual Funds
#stockmarket #stocks #finance #business #news #money #stimulus
#stock #trading #market #investing #equity #analysis #financing #credit #business #money
References:
========================================================
Link to the Morningstar report:
Summary:
==================================================
If you are among the millions of Americans who contribute to a 401(k) plan, you are very likely investing in mutual funds. Mutual funds are the most common investment options offered in 401(k) plans. Therefore, you should know how much investing in different mutual funds cost you so that you can pick the best for your future.
What is a Mutual Fund?
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.
A prospectus is a formal document that provides details about the investment objective of the mutual fund. For example, if you are planning to retire in 2040, you might decide to invest in a mutual fund managed by say Vanguard that aims at offering the best returns for people like you who are also planning to retire in 2040. As another example, you might want to choose a mutual fund that is more aggressive or more conservative in their investment strategy.
Since mutual funds are actively managed by professional money managers, they usually charge you a fee to cover the operational costs of running the fund. Therefore, when deciding to choose which mutual fund to invest in, it is critical to know how much these operational costs are.
That brings us to the definition of Expense Ratio (ER) or Management Fee.
What Is an Expense Ratio (ER)?
An expense ratio (ER), also sometimes known as the management fee, measures how much of a fund's assets are used for administrative and other operating expenses. An expense ratio is determined by dividing a fund's operating expenses by the average dollar value of its assets under management (AUM). Operating expenses reduce the fund's assets, thereby reducing the return to investors.
It is easier to demonstrate this using an example. Say, you have invested in a mutual fund that returns 7% on average that is without taking into account operating expenses of the fund. Also assume that the fund has an expense ratio or management fee of 0.5%. This means that your total gain is going to be 7% - 0.5% = 6.5% after paying the fees. Expense ratio or management fees are usually expressed in percentage. You can always find out how much the expense ratio of the mutual funds you have invested in by looking at your 401K statements.
Best Low Cost Mutual Fund Options?
You can save a ton of money by identifying the right mutual funds to invest in. The higher the expense ratio, the more you are going to pay over time in management fees. The difference might not seem that big of a deal at first, but over time they add up to a significant chunk of money.
In general, larger investment management firms offer better rates because they benefit from the economy of scale. However, you will find wide variations even among management fees charged by large firms. A great place to identify the most cost effective mutual funds is a website called Morningstar. They also publish a report where they rank top investment management firms based on their management fees. I have borrowed this data from their latest report. I will add the link in the description box so that you can access it as well.
As you can see in this chart, Vanguard offers the best expense ratio when it comes to mutual funds. Note that this is their average rate. Since Vanguard offers a large variety of mutual funds with different objectives, the management fee on different mutual funds are going to vary. However, this chart provides a great baseline to inform your investment decisions.
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