By Indexopedia Research Team | October 21, 2024 | In
Most pooled index fund investors are familiar with expense ratios but may not be aware of some of the less obvious costs. Investors need to consider the impacts of other factors such as: internal trading costs, trade spreads, cash drag, lack of quality, phantom taxes, price disadvantages, bond ETF discounts to NAV, and advisor fees (often ranging from 0.5%-1.5%+). Below we’ll discuss how these costs can impact performance and result in less return to the investor. Expense Ratio Expense ratios cover costs for a pooled fund’s portfolio management, administrative costs, marketing expenses, legal fees, custodial services, and other operational overhead. Essentially, the expense ratio covers the costs of running the pooled fund and is deducted directly from the fund’s assets. The expense ratio is expressed as a percentage of the net asset value and is available for all public pooled funds. By purchasing stocks directly, investors can bypass the expense ratios associated with mutual funds and ETFs. This approach allows them to have more control over their investment cost and potentially reduces their overall expenses. With a large investment portfolio, even a slight reduction in