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