Author Topic: Help me understand mutual fund IRA fees - what am I REALLY paying?  (Read 1542 times)


  • 5 O'Clock Shadow
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Really feel like I should know this, but I'm really (finally!) wondering how the various fees are disclosed, which ones are reported on monthly/annual statements, and when/how they kick in. (If there's a thread on this already, feel free to point me there).

For the sake of argument -  here's a very simplified snapshot:
-  A large mutual fund company - not (yet!) Vanguard - and I annually contribute the max/$6500 (the over age 50 contribution limit) in monthly contributions.
-  Let's say the current balance is $40,000 evenly spread between four different no-load mutual funds.
- "Buy and hold"-style investor - but does it matter if one hops in and out of (no load) funds?
-  Annual returns typically are between 5-8% per fund - some years some of the funds do better.
- Expense ratios on the four funds are .76, .48, .39, and .57
- The 2017 Annual Investment report on this account says only $16 was paid in "subtractions/transaction costs/fees/charges" fees for 2017 - how can this be? If there was 10K in the one fund charging a .76 expense - didn't I pay them 76.00 on this fund alone for 2017? (And thus, $48, $39, and $57, respectively?)

- So - where/how did this firm take out the expenses? Any light anyone can shed on this would be appreciated- thanks!


  • Magnum Stache
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Re: Help me understand mutual fund IRA fees - what am I REALLY paying?
« Reply #1 on: July 12, 2018, 03:58:35 PM »
The $16 is most likely a trading fee. The expense ratio's (which are high, btw, but you probably know that) are taken out before the performance of the fund is reported, so they're kind of invisible.

Other than trading fees, the other reason not to bounce in and out of funds is that you'll pay tax on capital gains when you sell, and if you sell before you owned for a year then you'll pay at short term capital gains rates which are higher than long term. This isn't true in tax advantaged accounts of course. Buy and hold is the way to go, but getting out of those high expense funds first, and pick a brokerage that won't charge you for trading a set of good mutual funds or ETFs (Vanguard, Fidelity, or Schwab would be my pick). 

Lucky Penny Acres

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Re: Help me understand mutual fund IRA fees - what am I REALLY paying?
« Reply #2 on: July 12, 2018, 04:03:58 PM »
If you look at the fund documents for the underlying mutual funds that you are invested in - you can see the financial statements for those underlying mutual funds which reflect the expenses.

The underlying mutual fund's performance is reduced by the expenses it pays, so while you see a return of 5% for the fund, that 5% is actually net of the fund's expenses - the fund actually returned a gross performance of say 5.76% but you only get 5% because 0.76% was paid by that fund in expenses.

Frankies Girl

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Re: Help me understand mutual fund IRA fees - what am I REALLY paying?
« Reply #3 on: July 12, 2018, 04:07:11 PM »
Fees and charges are separate from the expense ratio (ER) that you are charged for holding the fund/ETF itself. The ER is taken off the top each fiscal year. So buying and selling or additional transaction fees or brokerage operating costs that might be assessed are in addition to the ER. 

They take the ER out each year, you just likely won't see it in black in white on a monthly statement since it is already stated clearly that you're getting charged that amount yearly. If you wanted to sit down and go day by day over the last year, you'll find that ER taken out at some point, it's just not super obvious, and it is rolled into the calculations for the close of market up/down for that time that it is due. 

The fees they're listing on your reports/statements are the ones that are in addition to the ER.

So you're paying  - for example $16 in costs/fees/charges on top of the (kind of horrible) ER...

And hopping in and out of no load funds isn't a great idea if you're trying to be a buy and hold investor. Besides the fact that hopping in and out is pretty much the opposite of "buy and hold," some funds will prevent you from re-buying within a 30/60/90 day period due to folks trying to create things like tax loss harvesting and wash sales. And it seems kind of a waste of time to do so to me personally? Pick your funds and settle in. And really really bad idea to hop around funds in a taxable account unless you like paying cap gains and artificially increase your taxable income besides.

« Last Edit: July 12, 2018, 04:08:47 PM by Frankies Girl »


  • 5 O'Clock Shadow
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Re: Help me understand mutual fund IRA fees - what am I REALLY paying?
« Reply #4 on: July 12, 2018, 04:34:20 PM »
Thanks, guys! I wondered if the expense ratio fees were pulled out without me seeing them (despite poring over each of the monthly statements looking for a line-item withdrawal). So, Frankies Girl, do you know if the ER fees are typically pulled at the start or end of each firm's fiscal year? From super-quick Googling, it seems Schwab, T Rowe Price, and Fidelity (for example) have fiscal years ending Dec 31, while Vanguard looks to be September 30. My guess would be that fees are yanked at the start of a new fiscal year - is this right?

I've been in these four funds for years (and with this company for decades) - due mostly to inertia and sorta decent(ish) annual returns, I suppose. Was just wondering aloud if fund-hoppers got hit even harder on fees…

It is time for me to research if Vanguard (and/or ETFs with other companies or even my current one) have much more discounted options replicating the sectors my current funds are in so I can get out from under the high expenses. Or, finding even better sectors or swapping out for index funds :) Lots to check out and I just need to get on with it!

Thanks for your assistance and input!
« Last Edit: July 12, 2018, 04:44:10 PM by Paradise »


  • Bristles
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Re: Help me understand mutual fund IRA fees - what am I REALLY paying?
« Reply #5 on: July 15, 2018, 10:34:26 AM »
The expense ratio is collected daily, as part of normal business operations. As others have said, it is not a line item fee. It happens in the background. Kind of like when you buy a coffee, Starbucks does not show you the cost for accounting, adverts, etc.

I am something of a Vanguard diehard. Typical ER there is 0.1%, and some funds are as low as 0.04%. More exotic segments charge more, but Vanguard prides itself on low costs. It is hard to find a fund with higher than 0.5%.