This Type of Investment Just Keeps Getting Cheaper

Christel Deskins

The rewards continue to pile up for anyone who has the discipline and determination to save for retirement. © Asier Romero / Shutterstock.com Mutual fund fees fell to a new record low in 2019, Morningstar reports. The asset-weighted average expense ratio reached an all-time low of 0.45% last year — […]

The rewards continue to pile up for anyone who has the discipline and determination to save for retirement.



a person wearing a suit and tie


© Asier Romero / Shutterstock.com


Mutual fund fees fell to a new record low in 2019, Morningstar reports.

The asset-weighted average expense ratio reached an all-time low of 0.45% last year — down from 0.48% in 2018.

That’s a 6% decline from 2018 to 2019, according to Morningstar’s latest annual study of mutual fund fees. It is also the third-largest year-over-year percentage decrease recorded since 1991.

It’s not the usual blah, blah, blah. Click here to sign up for our free newsletter.

Passively managed mutual funds, aka index funds, continue to be far cheaper than their actively managed counterparts, on average.

According to Morningstar, the asset-weighted average fee for:

  • Passively managed funds fell from 0.14% in 2018 to 0.13% in 2019
  • Actively managed funds fell from 0.68% in 2018 to 0.66% in 2019

Money Talks News founder Stacy Johnson further details the advantages of index funds in “Are Actively Managed Mutual Funds Better Than Index Funds?”

What is an expense ratio?

Gallery: 13 Investing Rules You Should Break During the Pandemic (GOBankingRates)

An expense ratio is a measure of the cost of owning shares of a mutual fund. Morningstar says it examines asset-weighted average expense ratios because they are more reflective of what investors paid than simple average expense ratios.

The drop in mutual fund costs is a huge boon for retirement investors. According to Morningstar, investors saved nearly $6 billion in fund fees in 2019 alone because of this trend.

Ben Johnson, Morningstar’s director of ETF and passive strategies research, explains:

“Investors are increasingly aware of the importance of minimizing investment costs, which has led them towards lower-cost funds and share classes. There has also been intensifying competition among asset managers, who have cut fees to appeal to cost-conscious investors.”

Related: Retirees Can Dodge Taxes on These 9 Types of Income

Loading...

Load Error

Morningstar notes that the asset-weighted average expense ratio for mutual funds has been falling for two decades now.

In fact, investors paid nearly half as much to own funds in 2019 as they did in 1999 — when the asset-weighted average expense ratio of all U.S. open-end funds and exchange-traded funds was 0.87%.

Why lower fees matter

All of this is remarkably good news for your retirement nest egg. As we detail in “Of All the Fees You Pay, This Is the Worst,” just a 1% difference in investment expenses can cost you hundreds of thousands of dollars in lost savings over time.

Lower fees mean millions more Americans will enjoy the retirement of their dreams. So, as the good news continues to pour in, maybe it’s time to take a moment and give thanks to John Bogle, the legendary founder of Vanguard Group.

To find out more about the debt all investors owe to Bogle — who died last year — check out “Investing Pioneer Showed Us How Fees Rob Our Retirement Funds.”

Sponsored: Earn more interest on your savings

Are you earning as much interest on your savings as you could be? Grow your savings faster with banks offering rates that are significantly higher than the national average! Find the best rates and start earning more interest on your savings by using the Money Talks News savings and CD account comparison tool.

The Secret Fee That’s Stealing Your Retirement

UP NEXT

UP NEXT

Continue Reading
Next Post

Life-Saving Advancements, Treatments Delivered by Companies Invested in Innovation

NEW YORK, Oct. 2, 2020 /PRNewswire/ — Innovation and breakthroughs in the biotech industry are essential to identifying and providing life-saving treatments. Companies that invest substantial amounts of time, effort, and resources in key areas of research and innovation are critical in the advancement treatment options across the board. On the […]