There are 100 exchange-traded funds with expense ratios of 10 basis points or less. The Vanguard 500 Index Fund charges 4 basis points, or 0.04%. Commissions on stock trades can be as low as $4.95, and even zero in some cases. We have reached a point where it is free, or virtually free, to invest — which is weird! Only recently, investing was expensive.
I began investing in the late 1990s, and after reading a couple of books on mutual funds I decided to go with no-load funds instead of those with sales charges. Why pay for something if you don’t have to? I would learn many years later that there are some very nuanced reasons why you might want to pay for something if you don’t have to.
Sales charges are a very subtle form of behavioral coaching: High fees discourage active trading, and most people are terrible active traders. The presence of a sizable front- or back-end load encourages people to stay invested so the returns keep compounding. There have been lots of studies that show how fees eat into returns over time. This is simple math. All else equal, if the expense ratio on your mutual fund is 1%, you will have less money at some point in the future than if you had put your money in a fund with an expense ratio of 0.1%.
I keep waiting for opinion pieces touting how investment expenses have sunk to negligible levels, but people still seem to complain about such fees. What are they unhappy about? By and large, they are unhappy with their own performance amid one of the longest bull markets ever. Those who bought in 2009 and held on until today would be pretty happy, but I get the impression that very few people did that. They either bought too late, sold too early, panicked and puked at the worst possible time, or chased a hot new trend.
The result is that they inevitably underperformed a 60/40 mix of stocks and bonds , which would have provided about a 10.4% return since the start of 2009. Heck, it would have provided 6.34% since the beginning of 2007 — the top of the last bull market.