What is a responable expense ratio for a mutual fund? What is a number that is to high and i should stay away from? I just trying to see what is a good range for an expense ratio for a mutual fund.
The "average" expense ratio for a fund will vary widely based on the type of fund it is. An index fund will have a much lower expense ration than an actively managed fund. Global/international funds will have higher expense ratios. Different share classes of the same fund will ahve different expense ratios. In many (especially larger) 401(k) plans, the funds available may include institutionally priced (lower) funds... Check out Morningstar (or others) that will provide you with the category average, or ranking for various funds.What's "reasonable" is a different matter entirely. If a fund returns 100% per year (yea, right), I wouldn't mind paying a 500 basis point (5%)expense ratio. If it returns a more normal return, I would expect the expenses to be more normal.
got it. thanks
I believe that I read the "average" ER for common mutual funds is about 1.4%, but, as the prior response indicated there are many variables. I invest mostly in index funds from Vanguard so my funds have ERs in the vicinity of 0.15%. Vanguard's actively managed funds would probably be in the area of 0.7%.Lower is obviously better, but, sometimes there are other controlling reasons and availability. In most cases anything above 1.5% would cause me concern.Bob
I agree with what is posted above, but keep in mind an actively managed fund claims that it needs more money to hire the best stock pickers and support them with adequate staff and research. So they have an annual budget for these expenses which gets shared by all of the shares in the mutual fund.You then expect that a very large mutual fund gets by with a lower expense ratio, because it has many outstanding shares. A smaller competing fund can be forced to cut corners and may still have to charge a higher expense ratio.Similarly highly specialized funds that appeal to a small select group may have higher expense ratios.But then there are the sector funds that invest in a fixed collection of stocks with little management. Too often they have high expense ratios, and share holders are getting gouged. It's not worth it.Some note that small cap funds also have the problem that they cannot take large positions in these small stocks. Hence, they have more research to do, more paperwork, and more expenses.The bottom line is if you pay more than average expense ratio, make sure you get better than average performance, because index funds are still inexpensive. They are preferred unless some manager can consistently outperform their indexes.
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