NEW YORK — The recent fluctuations on Wall Street highlight the limited influence that investors wield over significant economic factors such as tariffs, inflation, or the profits generated by major technology firms. As these conditions fluctuate, it becomes increasingly important for investors to focus on areas where they can assert more control. One of the most essential aspects to manage is costs. When the S&P 500 experiences a decline of 2%, investors should not exacerbate their losses by opting for mutual funds or exchange-traded funds (ETFs) that imitate the index while also carrying higher fees.
Fortunately, it has become easier for investors to seek out lower-cost funds, largely due to intensified competition within the financial industry aimed at attracting investors. Current data from the Investment Company Institute indicates that the average fee for U.S. stock mutual funds has dropped to about 42 cents per $100 invested in 2023, a significant decrease from the 99 cents rate recorded in 2000.
This trend is showing no signs of slowing. Recently, Vanguard, a major player in the investment sector, announced substantial reductions in the fees across 168 various classes of mutual funds and ETFs. This initiative marks the most significant fee reduction in Vanguard’s nearly 50-year history, with an anticipated saving of over $350 million for its fund investors this year alone.
“Reducing costs allows investors to retain a larger share of their returns, and these savings compound significantly over time,” stated Salim Ramji, Vanguard’s CEO.
Funds typically present their expenses through a metric known as the expense ratio, indicating what percentage of the net fund assets is allocated towards annual expenses. A lower percentage is generally favored among investors. Most expense ratios fall below 1%, with some funds even advertising zero expense ratios.
As part of the recent fee reductions, Vanguard has slashed the expense ratio of its Total International Stock fund ETF from 0.08% to just 0.05%, reflecting the firm’s commitment to providing more cost-effective investment options.
