A Simple Kick-Ass Tool to Quickly Assess your Mutual Fund Expenses and Fees.

Investing

NewVestor Admin

Sunday, 28 July 2019

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As an investor, you cannot afford to pay too much in fees and expenses. Legendary investor Warren Buffett has two simple money rules: "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1." By paying a lot in fees, you are in fact losing money, causing you to violate Warren Buffett's #1 money rule. What if you could estimate your mutual fund fees and expenses before investing? Here's a tool to help you do just that.

Introducing Fund Analyzer

Fund Analyzer is a simple mutual fund tool from the Financial Industry Regulatory Authority (FINRA). This tool helps you estimate how fees and expenses will impact your investments. To show you how useful and easy this tool is, let's use the Fidelity® 500 Index Fund (FXAIX) to estimate 10 year expenses on a $50,000 initial investment. As of 7/28/19, the expense ratio of FXAIX is 0.015%. That's $1.50 annually for every $10,000 invested in the fund!

Step 1: Access Fund Analyzer

Using your web browser, visit: "https://tools.finra.org/fund_analyzer". You should be greeted by the screen below.

Figure 1. How to access Fund Analyzer. Courtesy of FINRA Fund Analyzer.

Step 2: Type in the fund name or symbol

In the search box, type in either the fund name or symbol. In our case, either "Fidelity 500 Index Fund" or "FXAIX" will do the job. Then click the red "Analyze" button (Figure 2 below).

Figure 2. Type in your fund name or symbol

Step 3: Enter your initial contribution, rate of return and holding period

Next, type in your initial contribution, rate of return and holding period. For the purpose of this article, our initial contribution, rate of return and holding period are $50,000, 8% and 10 years, respectively. The 10-year average S&P 500 return is 10%-13%. This step is shown below in Figure 3.

Figure 3. Specify an initial amount, rate of return and holding period.

Step 4: Behold your estimated fund fees and expense!

Based on a 8% rate of return, an investor can expect to pay approximately $112.84 in fees by investing $50,000 in the Fidelity® 500 Index Fund over 10 years! The estimated future value of this initial investment, after fees and expenses, is a whopping $107,784.47 (Figure 4 below). No wonder legendary investor Warren Buffet recommends index funds for the average investor.

Figure 4. Fund cost. With an initial investment of $50,000 in FXAIX, an investor is expected to pay $112.84 in fees over 10 years.

The bottom line

Fund Analyzer is a simple and powerful tool that allows an investor to estimate his/her fund cost. When evaluating and selecting mutual funds, always take a close look at the expense ratio and other investment fees. You can also use this tool to compare and estimate expenses on 2 or 3 funds side by side.

Here are a few other articles you may find useful: How investors make money in the stock market | Stocks vs. index funds vs. ETFs: differences and similarities | I heeded Warren Buffett's advice. I can't stop winning | 2 simple reasons why you don't need bonds in your portfolio | 4 reasons why you should fire your broker or robo advisor | A simple index fund and ETF quiz | 4 smart ways to both invest and pay down student debt.