{"id":7549,"date":"2024-11-08T19:47:56","date_gmt":"2024-11-08T19:47:56","guid":{"rendered":"https:\/\/finderica.com\/heres-why-etfs-often-have-lower-fees-than-mutual-funds\/"},"modified":"2024-11-08T19:47:56","modified_gmt":"2024-11-08T19:47:56","slug":"heres-why-etfs-often-have-lower-fees-than-mutual-funds","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=7549","title":{"rendered":"Here’s why ETFs often have lower fees than mutual funds"},"content":{"rendered":"
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Businessperson reviewing pie charts and data analysis documents in an office setting.<\/p>\n

Freshsplash | E+ | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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The trend is clear: Investors continue to seek out lower fees for investment funds.<\/p>\n

The mass migration to cheaper funds has been a key driver of falling costs, according<\/a> to Zachary Evens, a manager research analyst for Morningstar. \u00a0<\/p>\n

Average annual fund fees have more than halved in the past two decades, to 0.36% in 2023 from 0.87% in 2004, Evens wrote.<\/p>\n

And when it comes to fees, exchange-traded funds often beat their mutual-fund counterparts, experts said. \u00a0<\/p>\n

The average ETF carries a 0.51% annual management fee, about half the 1.01% fee of the average mutual fund, according to Morningstar data.<\/p>\n<\/div>\n

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More from ETF Strategist<\/h2>\n
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Here’s a look at other stories offering insight on ETFs for investors.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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Some experts say comparing average ETF fees to those of mutual funds isn’t quite fair, because most ETFs have historically been index funds, not actively managed funds. Index funds are generally cheaper than active ones, which employ stock-picking tactics to try and beat the market; that means average ETF fees are naturally lower, experts said.<\/p>\n

However, there’s a similar fee dynamic when comparing on a more apples-to-apples basis.<\/p>\n

To that point, index ETFs have a 0.44% average annual fee, half the 0.88% fee for index mutual funds, according to Morningstar. Similarly, active ETFs carry a 0.63% average fee, versus 1.02% for actively managed mutual funds, Morningstar data show.<\/p>\n

Investors pay this fee \u2014 a percentage of their fund holdings \u2014 each year. Asset managers pull it directly from client accounts.<\/p>\n

“There are so many things you can’t control in investing,” said Michael McClary, chief investment officer at Valmark Financial Group. “The one thing you can control is fees.”<\/p>\n

“I think it’s one of the key things people should care about,” he said.<\/p>\n<\/div>\n

<\/a>‘Cheap mutual funds also exist’<\/h2>\n
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ETFs and mutual funds are similar. They’re both baskets of stocks and bonds overseen by professional money managers, and offer ways to diversify your investments and access a wide range of markets.<\/p>\n

ETFs are newer. The first U.S. ETF \u2014 the SPDR S&P 500 ETF Trust (SPY