Mutual Funds for Cheapskates

As readers of my Champion Funds newsletter service are well aware, I'm a dyed-in-the-wool investing cheapskate. The Aggressive, Moderate, and Conservative model portfolios I've constructed for subscribers over the past year boast expense ratios of just 0.71%, 0.67%, and 0.52%, respectively.

Compare that with your brokerage bills and call me in the morning.

The finer things
I'm a bargain hound in other aspects of life, too. It's not that I don't appreciate the finer things; it's just that I don't want to pay an arm and a leg (or perhaps some other body part) for the sake of owning them.

As a result, when the Zimmermans became a two-car family in anticipation of little Penny Lou's arrival nearly 19 months ago (hard to believe), my main ride was still the Honda Civic I bought back in graduate school nearly 10 years ago (also hard to believe). Almost 150,000 miles later, that little silver bullet is still going strong.

But perhaps nowhere is my, um, skinflintiness more evident than when it comes to investing. I love a good investment bargain. And there's been lots of good news lately for me and my fellow fund fans on that front: Fees are on the decline.

Why is this so? Well, for starters, thanks to the fine foot- and spadework of Eliot Spitzer and his crack crew of investigators -- with, I'll admit, some assistance from the Securities and Exchange Commission -- many of the firms implicated in the fund industry's trading-abuse scandal have agreed to cut their funds' expense ratios.

Get a clue
Moreover, price pressure from exchange-traded funds (ETFs) has also helped the tightwad cause. When popular index trackers Vanguard Large-Cap (VV), which shadows the MSCI U.S. Prime Market 750 Index, and iShares S&P 500 Index (IVV), which follows (well, you guessed it) the S&P 500, can be had for as little as 0.07% and 0.09%, respectively, it's only a matter of time before fund companies get a clue and cut their prices down to size, too.

Fidelity's moves have perhaps been the most dramatic: The Boston-based money management behemoth made permanent fee reductions in 2005. Among other things, that means that investors in Fidelity's Spartan Total Market Index Fund (FSTMX) -- a Wilshire 5000 tracker whose holdings include growth picks like Cisco Systems (Nasdaq: CSCO  ) , SanDisk (Nasdaq: SNDK  ) , Apple Computer (Nasdaq: AAPL  ) , and Yahoo! (Nasdaq: YHOO  ) , as well as value fare like Pfizer (NYSE: PFE  ) , Fannie Mae (NYSE: FNM  ) , and Citigroup (NYSE: C  ) -- now pay just 10 basis points (0.10%) a year.

Not to be left behind is Vanguard, the house that Jack Bogle -- a cheapskate's cheapskate -- built. Yes, Vanguard 500 Index (VFINX) still goes for a relatively pricey 0.18%, but the shop's ETFs, like VV above (which they've dubbed "Vipers"), are dirt cheap and getting cheaper.

Actively managed bargains
There are certainly bargains to be had among actively managed funds, too. For reasons I explain here, I'm a big believer in the Foolish wisdom of owning both active and passive funds. Therefore, in addition to dishing the inside scoop on index-fund and ETF investing, each issue of Champion Funds features what we like to call the Fund of the Month.

These are the best of the money management industry's actively managed best, cherry-picked keepers of all market-cap sizes and styles. And in the context of a well-constructed portfolio, each of 'em, I should hasten to add, is worthy of a portion of your nest egg. Not for nothing do we dub these funds Champs.

The full list of recommendations is just a free trial away, but, by way of a taste test, here's one that might whet your appetite: Dodge & Cox International Stock (DODFX). Since making its Champion Funds debut back in our June 2004 issue, this fund has leapfrogged over the competition, sprinting to a gain of more than 66%, while the broad domestic stock market (as measured by the S&P 500) has climbed a mere 17.3%. Better yet, the Dodge fund's expense ratio will ding you just 0.77%.

Not bad, eh?

Full scoop
For the full scoop on International Stock and all the other recommendations -- a group that is besting the market by more than 11 percentage points as I type -- click here for a risk-free trial of the newsletter. Your test-drive provides access to all of the newsletter's back issues, as well as each of our model portfolios.

In the meantime ...

See you on the blue-light aisle -- and on the Champion Funds boards!

This commentary was originally published on April 19, 2005. It has since been updated.

Shannon Zimmerman is the lead skinflint for the Fool's Champion Funds newsletter service, which you can test-drive free for 30 days. Shannon owns shares ofFidelity Spartan Total Market Index Fund. Fannie Mae and Pfizer are Motley Fool Inside Value recommendations. The Motley Fool has adisclosure policy.


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