Are You Paying Too Much For Your S&P Index Fund?

Feb 25th, 2009 | Filed under: Analytics and Metrics, Investing, Investing Rules You Should Know

According to the latest data released by Standard & Poor’s, individual investors have over $1.5 Trillion in investable assets indexed to the S&P 500, the stock market index that tracks the performance of the 500 largest companies in the world. With approximately $15 Trillion in total investable assets, we have most likely made replicating the returns of the S&P our single largest investment strategy for retirement.

For the most part, this is good news.

But did you know that there are close to 150 mutual funds that track the S&P? And, more important, did you know that the fees for these funds vary widely, from a high of 1.50% to a low of .07%? That’s insane.

To put this difference into everyday dollars, if you had $25,000 invested in either of these two funds, you would pay $375 for one vs $17.50 for the other, every year. Over time, paying additional fees like that eat into your nest egg.

I decided to take a look at a sampling of the more expensive funds to see what investors get for that incremental fee. The short answer: Nothing.

Can you see the difference between the performance of these 4 S&P Index funds? You can if you look at their expenses.

The State Farm S&P 500 Index B (SNPBX) charges 1.48% of your assets, UBS S&P 500 Index (PWSPX) charges 1.45%, iShares S&P 500 ETF (IVV)has fees of .09%, and Fidelity Spartan 500 Index (FSMAX) is the cheapest of the bunch at just .07%.

How about when you look at different Index products within the same fund family? Same thing. Performance is nearly identical but fees vary dramatically.

Look at the 3 year performance of these funds, all from Morgan Stanley, and compared to the iShares S&P 500 ETF.

Morgan Stanley’s Equally Weighted S&P 500 (VADBX) has the worst return and charges the most at 1.37%. The company also charges 4X more than the iShares ETF for its S&P Index Fund (SPIDX).

I realize that there are subtle differences between these 150 S&P Index funds. But if you can’t see the differences in the performance, why waste your money on excessive fees.

Click here to see the entire list.

Do Not Pay A Lot For Your Index Fund!