A good expense ratio, from the investor's point of view, ranges from 0.5% to 0.75% for an actively managed portfolio, such as a Gold backed IRA account. A spending ratio greater than 1.5% is considered high. A general rule often cited by advisors and fund literature is that investors should try not to pay more than 1.5% for an equity fund, such as a Gold backed IRA account. Let's say you send two teams of runners to run a marathon, but you need one team to carry 25-pound backpacks. Which team do you think is most likely to have the best average time? What is reasonable? Depends on the type of fund.
Index funds should have the lowest fees, since they cost relatively little to operate. You can easily find an S&P 500 index fund with an expense ratio of less than 0.2%, for example. For mutual funds that invest in large US companies, look for an expense ratio of no more than 1%. And for funds that invest in small or international companies, which usually require more research, look for an expense ratio of no more than 1.25%.
But nothing could be further from the truth. Mutual fund research has shown that higher-cost funds generally underperform lower cost funds than lower-cost funds. Some funds cover the costs associated with transactions and an individual investor's account by imposing commissions and charges directly on the investor at the time of transactions (or periodically with respect to account fees). As suggested by the SEC, if you are buying an investment fund through a financial professional, ask that person to explain all charges that may apply, including your own fees.
Before delving into some of the investment reasons that explain the variation in expense ratios, it might be useful to understand the composition of a commission and how an investor pays them. A repayment fee is another type of commission that some funds charge to their shareholders when shareholders exchange their shares. Funds can do this by imposing a commission on investors, known as a sales charge (or sales charge), which is paid to sales brokers. Management fees are fees paid from the fund's assets to the fund's investment advisor (or its subsidiaries) for managing the fund's investment portfolio and for administrative fees payable to the investment advisor that are not included in the Other Expenses category.
It can be difficult for the average investor to get an idea of how much is paid for a particular fund. An account fee is a fee that some funds impose separately on investors in connection with maintaining their accounts. These fees, also known as mutual fund spending ratios or advisory fees, usually range from 0.25% to 1.5% of the investment in the fund per year. When an investor buys stocks that are subject to a final sales burden rather than an initial sales burden, no sales burden is deducted at the time of purchase and all investors' money is immediately used to buy shares in the fund (assuming that no other commissions or charges apply at the time of purchase).
Some 12b-1 plans also authorize and include shareholder service fees, which are fees paid to individuals to respond to investor inquiries and provide investors with information about their investments. A purchase commission is another type of commission that some funds charge to their shareholders when shareholders buy their shares. While a reimbursement fee is deducted from trade-in revenue, just like a deferred sales burden, it is not considered a sales burden. This line of the commission table is the total annual operating expenses of a fund, expressed as a percentage of the fund's average net assets.
If shareholder service fees are part of a fund's 12b-1 plan, these fees will be included in this category of the commission table. These fees and charges are indicated in the commission table, which is located near the front of the fund's prospectus, under the heading Shareholder Fees. .
