Expense Ratios

I know I published this awhile back but I'm putting this up again because I still run into a belief amongst some folks that somehow mutual funds offer better value than ETFs in terms of costs.  Costs should not be one of the reasons to own mutual funds.  The chart above shows that the average mutual fund has costs that dwarf those of ETFs.  

Take for example US Equity ETFs vs their mutual fund counterparts.  It is the top line in each asset class.  For ETFs the average cost is about 40 basis points but the weighted average is just 16 basis points.  We'll use the weighted average because the ETF industry is dominated by a few major players with much lower costs than the whole universe.  In that example those 16 basis points run up against an average expense ratio for actively managed open-ended mutual funds of 130 basis points.  Folks that's over 8x the cost for a product that usually doesn't do as well as the ETF.

There may be reasons to own mutual funds but cost isn't one of them.

Back early next week.