Longtime Fool readers know that most of us are not big fans of mutual funds. That's not only because the vast majority of them underperform the indexes over time but also because far too many of them charge you big -- often cleverly hidden -- fees for their underperformance.
Despite specious arguments to the contrary -- such as a recent article by Chuck Jaffe at CBS MarketWatch.com -- most of us still feel stocks or an index fund are a better choice for the majority of investors. Don't believe me? Look here. Or here.
Unfortunately, even stock fans like us can't avoid mutual funds altogether. My wife's retirement plan -- cough, AIG Valic, cough -- is one that, like many, doesn't permit buying individual stocks. (Restrictions like these are one reason we now offer our Champion Funds newsletter to help people choose the best actively managed funds out there.)
That's a long-winded introduction to this article's raison d'etre, a polite golf clap for Fidelity Investments. The reason? America's biggest mutual fund firm has cut expenses on some of its standbys -- the index funds -- leaving more money for you.
Fidelity capped the expense ratio at 0.10% on its Spartan 500 Index Fund
How much will the move reward investors? Well, it trims by half the previous 0.19% rate on the S&P 500 index trackers. The previous 0.47% cut Fidelity took on the international index will be clipped by nearly four fifths. While that looks puny, if you put $1,000 away each month into an index that earns just around 9% over 30 years, the difference between 0.19% and 0.10% on the expense rate will come to almost $40,000 -- of the roughly $1.8 million total.
Pennies add up, as any Fool knows. So let's set aside the urge to ask why it took Fidelity so long to drop these fees and just hope that other fund companies are moved to do the same.
Seth Jayson still says mutual funds will deliver less than you can earn by investing Foolishly. He has no position in any companies or funds mentioned. View his Fool profile here.
