Articles for Financial Advisors



According to a May 2014 WSJ article, after 30 years, a $200,000 mutual fund investment (8% gross annualized return) grows to $1.4 million after paying the typical mutual fund annual fee of 1.25%. This was the average expense ratio for mutual funds for 2013 (source: Morningstar). The same investment grew to $2.0 million if annualized returns were the same but a 0.04% annual expense ratio (source:

The entire $600,000 difference above is solely due to annual expenses (0.04% vs. 1.25%). The $200,000 investment with a 1.25% annual fee pays $2,500 a year initially; the $200,000 invested in a fund with a 0.04% expense ratio initially pays $80 the first year.

The expense ratio peak for mutual funds was reached in 2003, when the typical fund charged 1.47% a year. Consider a $100,000 invested in the Vanguard 500 Index Fund (0.05% expense ratio). Assuming a gross return of 8.00% (7.95% after annual fund fees), the investor would have > $990,000 after 30 years. The average mutual fund investor with the same 8% gross return would have $710,000 after paying the typical annual fund expense.

According to, the least expensive large cap ETF is Schwab U.S. Large-Cap (0.04% annual expense ratio). Some ETF analysts believe the investor should also focus on an ETF’s bid-ask spread; it should not be > 3 cents for a stock ETF and 5 cents for a bond ETF.

ETFs: Lowest Expense Ratios  [May 2014]



ETF Category

Expense Ratio

Category Average

Schwab U.S. Large Cap  (SCHX)

Large Cap



Schwab U.S. Broad Mkt.  (SCHB)

U.S. Total Market



Schwab U.S. Agg. Bond  (SCHB)

U.S. Quality Bond



Schwab U.S. Small Cap  (SCHA)

U.S. Small Cap



Vanguard Intern’l Stock  (VXUS)

Foreign Total Stock



Vanguard Total World  (VT)

Global Stocks



DJ-UBS Commodity  (DJCI)

Broad Commodities



Investors who want to reduce ongoing fees should consider the following options: [1] paying for advice hourly ( or GarrettPlanningNetwork. com); or [2] get advice solely over the Internet [ ($300 initial prep + $19 a month), Wealthfront, Schwab, TradeKing, TD Ameritrade, or USAA].


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