The Security and Exchange Commission’s new “Mutual Fund Cost Calculator” allows
investors to compute the amount of investment growth lost by investing in funds
that have high expenses or sales fees. This calculator is available at
href=”http://www.sec.gov/investor/tools/mfcc/mfcc-int.htm”
target=”_blank”>www.sec.gov
For example, a low-cost fund such as Vanguard S&P 500 Index has an expense
ratio of 0.18 percent, vs. the category average of 1.27 percent, according to
Morningstar. That’s an annual advantages of 1.09 percent, for the low-cost
fund; it’s doubtful that the average mutual fund will outperform the index fund
by 1.09 percent per year, over the long term.
Over 50 years, a $10,000 investment in such a low-cost fund will cost $700,000
less in fees and forgone earnings than a fund with average expenses. That
average fund would grow to around $1 million–not bad, but far less than the
$1.7 million you’d have with a low-cost fund.
If you invest in a fund with above-average expenses, your long-term return is
likely to be even lower, compared with the accumulation you can expect with a
low-cost fund.
