High-Cost Index Funds and Low-Cost Actively Managed Funds

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Here’s a Vanguard Blog post called Mind fund details, not labels by Frank Kinniry that includes some good reminders about the mutual fund and ETF industry:

  • Low-cost vs. high-cost is more important than actively managed vs. passively managed.
  • Index funds can have high expense ratios.
  • Actively-managed funds can have low expense ratios.
  • You should also evaluate based on “managerial talent”, although that is much harder to judge than costs.
  • Therefore… look under the hood at the asset allocation and expense ratio!

Did you know that the average Vanguard active fund is actually cheaper than the average non-Vanguard index fund or ETF?

vg_lowcosts

A consistent history of low costs and solid, conservative management is why I have overall positive opinions of the Vanguard Wellington and Vanguard Wellesley mutual funds. If you accumulate enough assets to qualify for Admiral Shares, they only cost 0.18% and 0.15% respectively. I wouldn’t necessarily recommend them to my family as my #1 choice, but I wouldn’t tell them to switch out either. I would certainly pick Wellington/Wellesley in a 401(k) plan over a similar allocation towards expensive index funds or an expensive target retirement fund.

Bottom line. There are a lot of expensive index funds out there. Watch out.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”



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