| For a better mutual fund and ETF investment | | | | index mutual funds directly from other fund |
| strategy, focus on very low cost, broad market, | | | | families at just a .1% annual management fee |
| passive index mutual funds and ETFs. They cost | | | | with no sales charges? Well, there really is no |
| less and get the broad market return -- whatever | | | | value-added. None. Zip. Nada. If you are naive |
| that will be -- before costs. They narrow the | | | | enough to pay higher investment costs for an |
| range of investment portfolio outcomes, and | | | | index funds, then these ridiculously high fees are |
| therefore they reduce the risk to your long-term | | | | just a wealth transfer from you to the industry |
| personal financial plan. They take far less time to | | | | that repeatedly bleeds your personal investment |
| manage personally. Furthermore, extensive | | | | portfolio year after year. |
| financial research has shown clearly and | | | | So, how can you find low cost S&P 500 |
| overwhelmingly that a passive, low cost index | | | | index mutual funds? There are a couple ways. |
| strategy for individual investors tends to be | | | | First, you could read these 18 fund screening |
| superior from a risk-adjusted, after-tax, and net | | | | articles by The Skilled Investor: "Selecting |
| returns standpoint. | | | | Investment Funds -- Mutual Funds and ETFs" The |
| Unfortunately, lately, the index fund investment | | | | Skilled Investor also suggests using the and the |
| space has become a minefield for individual | | | | automated on-line fund screeners to screen funds, |
| investors. Given the growing popularity of index | | | | because they are free to use, and they have |
| fund investing, many new supposed "index" | | | | relatively current and comprehensive mutual fund |
| mutual fund and ETF products have been | | | | and ETF databases. There are articles that tell |
| introduced to the market that may not | | | | you how to use these fund screeners. |
| necessarily serve the interests of passive, | | | | Get educated and get smart about selecting |
| buy-and-hold individual investors. Some of the | | | | mutual funds and ETFs. Picking them just because |
| index investment land mines out there are high | | | | they have 4 star and 5 star ratings and a nice |
| index fund costs, active "index" management, and | | | | historical performance graph usually leads to lousy, |
| new indexing definitions and concepts that stray | | | | sub-par results. Historical performance is just |
| from the original asset-weighted concept that has | | | | industry marketing bait for naive, performance |
| served individual investors so well for several | | | | chasing investors, who will most often arrive at |
| decades. | | | | the party too late. |
| Measured by invested assets, the S&P 500 | | | | Second, you can read this research article, |
| index is the most common index fund benchmark | | | | "S&P 500 Index Mutual Funds," by John A. |
| in the U.S. The S&P 500 tracks about 75% | | | | Haslem, H. Kent Baker, and David M. Smith |
| of publicly traded U.S. equity market asset value. | | | | published in the March/April 2007 Journal of |
| You might think that you can pick any old | | | | Indexes (pages 34-38). Haslem, Baker, and Smith |
| S&P500 benchmarked index fund or ETF and | | | | analyzed the investment expenses of |
| thereby adopt a passive, low cost, broad market | | | | S&P500 index mutual funds and found a |
| index strategy. Nope, sorry. Life just never | | | | very wide dispersion of management fees and |
| seems to be that easy. | | | | total expense ratios. |
| The dominant issue with S & P 500 index | | | | Without all their research details, which you can |
| mutual funds and ETF funds is that fees charged | | | | read yourself, Haslem, et.al. simply found that |
| by securities industry firms are all over the map | | | | higher expenses just lowered investors' net |
| from reasonably low to shockingly high. If you are | | | | returns. They grouped S & P 500 index |
| not careful, there is even one S & P 500 | | | | funds by expense groupings from low to high, i.e. |
| index fund out there that will charge you 2.71% | | | | standard deviations around the average expense |
| annually for management fees and 12b-1 | | | | ratio. They reported a list of twenty-five retail |
| investment sales fees combined. | | | | and institutional index mutual funds with lower |
| You might ask, what is the value added for such | | | | costs. |
| high fees, when you can purchase S&P 500 | | | | |