Fees on stock index mutual funds plunged 56% from 2000 to 2013, to an average 0.12% from 0.27%, according to an Investment Company Institute study.
And the decline isn't over. Some funds, including those from Vanguard and Fidelity, now charge less than half last year’s average.
Actively managed funds -- where fund managers pick stocks rather than just mirror stock indexes -- are also lowering fees, though not nearly as much. Managed stock fund fees dropped 16%, to 0.89% from 1.06%, during the same 13-year period, while managed bond fund fees fell to 0.65% from 0.78%.
Actively managed funds now are seven times more expensive than index funds, compared with four times as expensive back in 2000.
There’s nothing mysterious about the heavy discounting of index fund fees. Investors are pouring money into index funds faster than they are into actively managed funds, so index funds can afford to charge less and still increase profits. In business parlance, it's known as economies of scale.
As an added bonus to investors, index funds have been outperforming many managed funds. For instance, the largest stock index fund, Vanguard’s Total Stock Market Index (VBTLX) , is up 9.4% this year and charges only 0.05% on an investment of $10,000. By comparison, a big managed fund like American Fund's Growth Fund of America (AGTHX) charges 1.46%, but is up only 7.6% for the year.
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