Defining Reasonable Fund Fees

In a previous post, A New Year’s Resolution for Trimming Fat Fees, we discussed the importance of keeping an eye on the expense ratios disclosed in a fund’s prospectus as a great first step toward minimizing unnecessary investment costs. The challenge is knowing the difference between reasonable compensation for valuable service rendered, versus wasted dollars that only further line already plump pockets. “Reasonable” varies, depending on the type of investment. For example, it costs fund managers more to provide exposure to smaller, less liquid markets such as those found in emerging markets. So we must expect to pay more for these funds … to a point. To get a sense of the range of fees for various market exposures, consider referencing this Dimensional Fund Advisors performance page taking note of the Total Operating Expense Ratio listed in the far right column for each type of fund. If your comparable fund’s total expense ratio is considerably higher, you may want to find out why.

Dimensional Fund Advisors' Fees for Various Asset Classes*

*The performance information shown in this chart is past performance. Past performance is no guarantee of future results. This chart is not intended to be investment advice, but simply as an illustration of the range of fees for various asset classes. Pathway Financial Planning is not responsible for content on third-party websites.

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