You'd think when a mutual fund publishes its total expense ratio, you could be confident that number represented all the costs you'll pay to invest in the fund. Well, it doesn't. There are all sorts of hidden trading costs associated with mutual funds that don't show up in the total expense ratio, but do weight on the fund's returns. Two funds could have the exact same expense ratio, but one that trades frequently could be more expensive to own than one that trades very little because every time a fund buy or sells a stock they pay a commission, just like you do in your E*TRADE account.
LAtimes.com reports that the Securities and Exchange Commission hopes to require funds to more accurately account for true cost of fund ownership:
In an interview, Cox said companies that manage funds and retirement plans should be required to report 'one simple number that captures fees and expenses.' As traditional pensions disappear, more workers are relying on 401(k)s and individual retirement accounts. But excessive fees can jeopardize the financial security of retirees.
These costs are often hidden now — either buried in the fine print of a fund prospectus, or simply deducted from accounts without ever showing up as a line-item expense.
'It's our top regulatory priority,' said Cox, who wants to make it easier to compare funds. 'There are always technical concerns raised by someone, but the truth is that apples-to-apples comparisons are quite useful for consumers. The same should be possible for our retirement savings.'
Sounds like a good idea, but it won't be easy. The problem is that some trading costs are easy to hide, and others hard to measure. If a fund thinks investors are paying attention it is not difficult for them to obfuscate the amount they pay to brokers to buy and sell stocks. A fund could, for example, make a wink-wink nudge-nudge deal with a broker to pay very little in commissions per trade in exchange for paying a slightly higher price per share of a stock.
While the SEC will be grappling with this difficult issue for quite a while, MAXfunds is ahead of the curve. If you're looking for one simple number that captures fees and expenses (including an estimate of trading costs), we've got some good news for you. Our MAXrating: Expenses, found on each funds data page here on MAXfunds.com, does just that.
You'd think when a mutual fund publishes its total expense ratio, you could be confident that number represented all the costs you'll pay to invest in the fund. Well, it doesn't. There are all sorts of hidden trading costs associated with mutual funds that don't show up in the total expense ratio, but do weight on the fund's returns. Two funds could have the exact same expense ratio, but one that trades frequently could be more expensive to own than one that trades very little because every time a fund buy or sells a stock they pay a commission, just like you do in your E*TRADE account.
LAtimes.com reports that the Securities and Exchange Commission hopes to require funds to more accurately account for true cost of fund ownership:
In an interview, Cox said companies that manage funds and retirement plans should be required to report 'one simple number that captures fees and expenses.' As traditional pensions disappear, more workers are relying on 401(k)s and individual retirement accounts. But excessive fees can jeopardize the financial security of retirees.
These costs are often hidden now — either buried in the fine print of a fund prospectus, or simply deducted from accounts without ever showing up as a line-item expense.
'It's our top regulatory priority,' said Cox, who wants to make it easier to compare funds. 'There are always technical concerns raised by someone, but the truth is that apples-to-apples comparisons are quite useful for consumers. The same should be possible for our retirement savings.'
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Sounds like a good idea, but it won't be easy. The problem is that some trading costs are easy to hide, and others hard to measure. If a fund thinks investors are paying attention it is not difficult for them to obfuscate the amount they pay to brokers to buy and sell stocks. A fund could, for example, make a wink-wink nudge-nudge deal with a broker to pay very little in commissions per trade in exchange for paying a slightly higher price per share of a stock.
While the SEC will be grappling with this difficult issue for quite a while, MAXfunds is ahead of the curve. If you're looking for one simple number that captures fees and expenses (including an estimate of trading costs), we've got some good news for you. Our MAXrating: Expenses, found on each funds data page here on MAXfunds.com, does just that.