Price Wars Drop Mutual Funds Fees to an Historic Low
By Bob Plunkett
Even if you dabble with investing it would be hard to miss the excitement over a price war that is making passive mutual funds very cheap to buy and own.
Big fund companies like Charles Schwab, Fidelity Investments, TD Ameritrade and E-Trade have cut their fees to as low as $3 to $7 for every $10,000 invested. These are historically low fees scheduled. Fidelity removed redemption fees on its funds. But fees can become too low.
Redemption fees are charged to investors who withdraw their money after a short period. These fees are paid back to the remaining shareholders. In addition, the fees deter short-term trading and help create a more stable fund. This deterrent enables fund managers to maneuver in a more stable environment so that they can buy and sell assets when prices are attractive – and not because of short term redemptions.
The key in any mutual fund investment hasn’t changed – it is performance. Lower fees are not the biggest factor to investing. Professionals insist people who are fully invested should not make asset changes based on lower fees. Saving in the short term, doesn’t necessarily payoff in the long term. Save the lower-fee funds for new investments.