Broker Check

Investment Fees and Expenses

September 17, 2018

Fund Fees & Expenses can play a major role in the performance of an investment portfolio.  When we invest in mutual funds or exchange traded funds we are essentially hiring an investment company to build and manage a basket of securities, with the goal of gaining broad market exposure.

To compensate the invest-ment company for their resources and expertise, the investment company charges a fee, also known as an expense ratio, to manage the fund.  Expense ratios may range from 0.03% to over 2.5% on an annual basis. One of the main objectives of the investment company is to replicate or outperform its respective benchmark over the long-term, net of fees.

Some investment companies have recently made headlines for cutting their fees to very low levels. While this is a good thing for investors it is equally important to review investment objectives, time horizon, and overall asset allocation to determine how each fund fits into a portfolio.  Once you’ve determined the percent allocation for an asset class, it is important to review the benchmark the fund is following along with the current holdings and tax efficiency of the strategy. Sometimes, the lower cost option could end up costing more over the long-term if it does not effectively track its respective benchmark or causes adverse tax events.

At Planned Solutions we are always seeking low cost investments for our clients that are consistent with our investment philosophy, investment objectives, and our client’s long-term financial goals.