Mutual funds and index funds all have fees associated with managing them. Some mutual funds have a “load” which is an up front percent that is taken to generally pay a financial advisor. There are also fees which deal with advertising and managing the funds.
What you’re paying for is the management style you are after. In some cases, one may choose to have that active investment style with the higher fees. After all, those management professionals surely can beat the market, correct? Unfortunately, even if they beat the markets, you’re still paying more through your fees to market said mutual funds.
Below are three funds I’ve been invested in, although when I finally got rid of my American Funds, I sold out of the Income Fund of America.
Oddly enough, that actively managed fund did not beat two Vanguard funds with no 5.75% fee up front. So not only did I pay for a far worse performing fund, I also saw less returns.
I got into American Funds because my parents were in with them through the bank, and started an account for me at a young age. While it got me started, I have learned that there is a better way that suits my style better and have switched my funds to Vanguard. I also have individual holdings through a broker with zero fees.
I encourage you to review the fees you’re paying. For every $100 I contributed as a teenager, I lost $5.75 to the load. That $5.75 wasn’t much, but after contributing thousands, and having been invested now for over 20 years, would have turned into much more.
Happy Investing!