What is an appropriate expense ratio for a fund that has historically performed the same as the market as a whole. Is anything over 1 a rip-off?
I'm asking because my company's 401k plan expense ratios seem really steep.
Full Version: Expense Ratio
QUOTE(Milton @ Nov 15 2007, 04:43 PM) 
What is an appropriate expense ratio for a fund that has historically performed the same as the market as a whole. Is anything over 1 a rip-off?
I'm asking because my company's 401k plan expense ratios seem really steep.
I'm asking because my company's 401k plan expense ratios seem really steep.
The average stock mutual fund has an expense ratio of about 1.5% so 1% is not outlandish. However, different types of funds have different appropriate expense ratios. For example, some index funds have really low expense ratios (0.2%) while others may be over 1%. International funds tend to have higher expense ratios.
QUOTE(Milton @ Nov 15 2007, 04:43 PM)
What is an appropriate expense ratio for a fund that has historically performed the same as the market as a whole. Is anything over 1 a rip-off?
I'm asking because my company's 401k plan expense ratios seem really steep.
I'm asking because my company's 401k plan expense ratios seem really steep.
All of the expense ratios for my plan is less than .10%.
Are the funds for your company all actively managed? If the funds are based on indexes you might be able to find an alternative that is not actively managed for under 1%. I'd say anything over 1% is not great. I guess if you are getting the matching contribs. there's not much you can do.
QUOTE(Psychodad @ Nov 16 2007, 08:16 AM)
I guess if you are getting the matching contribs. there's not much you can do.
Yeah, there's not much I can do, aside from complaining to the benefits dept.
Here's a link to a decent article on expense ratios. If your funds are not generally outperforming the market you would most certainly be better off with an index fund.
That said, even if you are unable to get an index fund through your 401K at the moment, it still might be a good idea to get a bunch of employees to request it from your HR group as many companies do respond to these types of requests eventually when they see that there is sufficient demand from employees. I've seen it happen at a number of large corporations, so it's definitely worth it IMO as it helps maximize your return.
QUOTE
Meanwhile, in the wonderful world of index funds, the expense ratio is typically around 0.25% and gets as low as 0.18% for the king of all index funds -- the Vanguard 500 Index.
However, just because a fund labels itself an index fund does not mean that it has the extremely low expense ratio of the best index funds. Some mutual fund companies, knowing that their clients have heard about the superiority of index funds, have started index funds with expense ratios of more than 1%. Avoid these like the plague. If you've read this far, you can do better than that, Fool. In fact, where index funds are concerned, you should probably simply be getting the one with the lowest expense ratio -- probably around 0.18%.
However, just because a fund labels itself an index fund does not mean that it has the extremely low expense ratio of the best index funds. Some mutual fund companies, knowing that their clients have heard about the superiority of index funds, have started index funds with expense ratios of more than 1%. Avoid these like the plague. If you've read this far, you can do better than that, Fool. In fact, where index funds are concerned, you should probably simply be getting the one with the lowest expense ratio -- probably around 0.18%.
That said, even if you are unable to get an index fund through your 401K at the moment, it still might be a good idea to get a bunch of employees to request it from your HR group as many companies do respond to these types of requests eventually when they see that there is sufficient demand from employees. I've seen it happen at a number of large corporations, so it's definitely worth it IMO as it helps maximize your return.
What does the term 'expense ratio' mean?
QUOTE(FYI @ Nov 16 2007, 10:17 AM)
What does the term 'expense ratio' mean?
Here is the definition from the article I linked in my earlier post. The expense ratios we're talking about are with respect to mutual funds.
QUOTE
The expense ratio represents the percentage of the fund's assets that go purely toward the expense of running the fund. The expense ratio covers the investment advisory fee, the administrative costs, 12b-1 distribution fees, and other operating expenses.
QUOTE(Rachel8 @ Nov 16 2007, 09:33 AM)
Here is the definition from the article I linked in my earlier post. The expense ratios we're talking about are with respect to mutual funds.
Got it.
Thanks!
QUOTE(Rachel8 @ Nov 16 2007, 10:12 AM)
I've seen it happen at a number of large corporations, so it's definitely worth it IMO as it helps maximize your return.
Thanks. I'm not holding my breath for this company.
Most company managed 401k plans are so bloated with fees and expenses they ought to be sued. Most actively managed mutual funds fail to even beat the index. And their expenses are outrageous.
Read anything by John Bogle on this topic.
Read anything by John Bogle on this topic.
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