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Ask a Fool: What Are Reasonable Fees to Pay for Mutual Funds and ETFs?

By Matthew Frankel, CFP® – Jan 18, 2019 at 12:00PM

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If you don't know how your funds stack up cost-wise, here's a quick primer.

Q: I was recently looking through some of my IRA investments (mostly mutual funds) and some of the fees struck me as rather high. What should I be paying?

You can determine the fees you're paying for your mutual fund and ETF investments by looking at their expense ratios. This information is easily found in a fund's prospectus, and is generally listed in a quote you can readily access on your brokerage's website.

Expense ratios are expressed as a percentage of the fund's assets. In other words, if you have $10,000 in a particular mutual fund, a 1% expense ratio implies that you're paying $100 in fees per year.

There's no one-size-fits-all rule when it comes to what's too expensive, but here are my guidelines:

Generally speaking, for an actively managed mutual fund or ETF, anything over 1% is too high. There are far too many excellent funds with lower expense ratios to choose from. For example, one of my favorite actively managed funds, the Dodge & Cox Stock Fund (NASDAQMUTFUND: DODGX), has a perfectly reasonable 0.52% expense ratio.

On a similar note, there's really no reason you should be paying an up-front fee, known as a "front-end load" or simply a "load," for any mutual fund. There are thousands of good no-load funds to choose from.

Finally, for an index fund -- say, a fund that tracks the S&P 500 or invests in a bond index -- I'd consider anything greater than 0.3% to be excessive. Many Vanguard and Schwab index funds charge much less than this, and there's no good reason I can think of to pay more for a fund with the exact same investments as a lower-cost option.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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