Pam Krueger, CEO of Wealthramp.com, an online service that matches investors with registered financial advisers, and executive producer of MoneyTrack: Money for Life on PBS stations.
Mutual fund providers are jockeying to compete with low fees on index funds. Examples: In March, Charles Schwab dropped the expense ratio on its version of a fund tracking the S&P 500 stock index (SWPPX) to an industry-low 0.03% per year for any investment amount, which equals a $3 annual fee on a $10,000 investment. That undercuts the two providers typically thought of as the biggest bargains. Fidelity, which lowered its fees last year, charges 0.09% for its basic S&P 500 index fund (FUSEX) and 0.05% for its “Premium” version (FUSVX) available to investors who have at least $100,000 in assets at Fidelity. Vanguard, which lowered its fees in April, charges 0.14% for its basic version (VFINX) and 0.04% for its Admiral version (VFIAX) available to investors with at least $10,000 in that fund, which is the biggest US stock mutual fund by assets.
Among total-market stock index funds, Schwab charges 0.03%…compared with 0.11% or 0.045% at Fidelity for basic and “Premium” versions respectively…and 0.15% or 0.04% at Vanguard for basic and “Admiral” versions respectively. Among small-cap stock index funds, Schwab charges 0.06%… compared with 0.18% or 0.06% at Vanguard…and 0.19% or 0.07% at Fidelity.
For international index funds, Schwab charges 0.07%, compared with 0.18% or 0.06% for Vanguard and 0.19% or 0.08% at Fidelity. For total-market bond index funds, Vanguard is cheapest, charging 0.15% or 0.05%, while Fidelity charges 0.45% and Schwab charges 0.29%.
Investors have been shifting dramatically away from actively managed funds to funds that passively track indexes, including index mutual funds and exchange-traded funds (ETFs). Over the past decade, more than $1 trillion shifted…and in 2016 alone, $265 billion moved out of actively managed US stock funds while $236 billion moved into index funds and ETFs, according to data from Vanguard and Morningstar.