Hidden Mutual Fund Fees To Be Made Transparent
Earlier this week, the House approved a measure that would force mutual fund companies to disclose all of the fees they charge individual investors. This is great news for all of us that have the majority of our retirement savings in mutual funds and currently have no idea how much we are spending each year on these services.
The legislation is part of an effort by the committee to improve disclosure of 401(k) fees and create more transparent marketing of retirement products…In addition, all fees taken from a plan participants’ 401(k) account would be disclosed in one dollar amount in their quarterly statement.
The reason this is such a big deal for investors is two-fold.
First, these hidden fees can sometimes be substantially more than the published management fees you think you are paying. In a report done by Gregory W. Kasten of Unified Trust Company, which appeared in the Journal of Pension Benefits, he found that the average stock mutual fund cost over 3% a year when incorporating these fees, such as transaction fees. Here is a great chart showing some funds, like Technology and Small Growth, that more than double their expense!
Second, and most important, investors are cheated out of the opportunity to compound these savings over time, significantly eating away at their nest egg. In real terms, investors are losing $50K to $400K over their lifetimes to these fees.
So what can a smart investor do to combat high mutual fund fees? Stick to a low-cost strategy appropriately weighted with Value and Growth, International, and Fixed Income Index funds.
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Posted by: Steve Carpenter
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