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Carla Fried: Hidden mutual fund and ETF fees can cost you plenty

Carla Fried, on

Published in Home and Consumer News

As the State Street report points out, anyone who thinks 0.60% is a good deal, is off by a magnitude of 6x.

It’s actively managed mutual funds that are more expensive. The asset-weighted average is 0.66% according to Morningstar. Keep in mind that reams of data over every possible time frame have shown that it is extremely rare for actively managed funds to consistently deliver returns that exceed a comparable index fund.

Making more by paying lower expense ratios

If your investing is confined to a workplace retirement plan, see if there are low-cost index funds offered. You can move money inside a workplace retirement plan (or an IRA) from one fund to another without any tax bill.

If there are no index funds in your workplace plan with expense ratios below 0.30% or so, that’s a signal you’ve got a subpar plan. That said, you always want to contribute at least enough to get the maximum company matching contribution. But beyond that amount, you might want to consider doing additional retirement investing in an IRA where you are free to choose the lowest-cost index funds or ETFs.


If you own expensive funds in regular taxable accounts, you will want to be careful with how you proceed. Exchanging shares of one fund for another will trigger a capital gains tax if the fund shares you are selling are higher than what you paid, or higher than the reinvested value of any dividends and capital gains the fund made in any given year.

Log in to your account, and with a few clicks on the website you can likely get an estimate of your potential tax for selling. You don’t have to sell all the shares at once. The goal is to think through the value of paying tax now to reap the long-term benefit of reinvesting the money in super low-cost funds or ETFs that will leave more money in your pocket.

If you don’t want to deal with a tax bill right now, you can start taking advantage of low-cost index funds and ETFs by directing all fresh investment dollars into the cheapest portfolios.

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