Money fix: Mutual fund fees, how much is too much?
Other Columnists
People are paying more for some of their stock mutual funds, according to a new report from Lipper Analytical Services. That's because in the past year, more than 70 percent of those funds have raised their fees, which investors have to pay toward the fund's operating expenses, such as salaries, marketing and legal costs.
However, many people are barely aware they are paying these fees -- it almost feels like there were none, says Roberta Schroder, chairwoman of the economics and finance department of Nassau Community College. Fees are not itemized on mutual fund quarterly statements, many of which are now found online, she says.
Here's a primer on fees and how much is too much for the average investor.
1. First, there are load or no-load funds. Load means you pay a fee when you buy or sell the fund. No load, no fee. If you look up the fund on Morningstar.com, at the top right you'll see if it's load or no-load. If you're a bread-and-butter investor with a basic strategy, there are "plenty of good, solid funds that do not charge such fees," says Schroder.
2. For operating expense fees, check the expense ratio to the right of the load/no load entry on Morningstar. Again, Schroder and other financial experts say that for the average investor there are "plenty of really good choices for 1 percent or less."
3. More sophisticated investors looking for specialty funds, such as international small-cap funds, may find it necessary to pay higher fees, because those funds can be more expensive to operate, says Jon De St Paer, vice president of product development at Charles Schwab.
Important though fees are, Schroder says it's not wise to base investing decisions on them alone.
