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The Golden Age of Cheap Funds

A recent study by the ICI Research Perspective highlights why we have entered a period of time that has strongly favored investors. As much has been written on the debate between active management and passively managed (index) funds, the constant remains that costs have declined dramatically in the last 20 years – the golden age for cheap funds.

The study noted that the average actively managed mutual fund expense ratio has declined from 1.08% to 0.82% from 1996-2006, and passively managed equity mutual fund expenses fell from 0.27% to 0.09%. This means that investors have directly benefitted from the competition between firms and the technological efficiencies that have been created by the development of trading software, algorithmic modeling, and the ability to utilize “big data” to assist in research.

In addition to competition inside the mutual fund industry the development of exchange traded funds, or ETFs, have also impacted expenses and product offerings. (We recently recorded an episode of our podcast, Gimme Some Truth, about ETFs. You can check that out here.)

What does this mean for investors? Lower cost with more choice. As a result of this, it has never been a better time to be an investor, and the future looks bright as we are very likely to see this continue. With the vast amount of choice and difference in expenses we recommend that you seek out an independent advisor who acts in your best interest as a fiduciary to assist you in fund selection. As always, don’t hesitate to reach out if we can help you find the right cheap funds.