@ClementsMoney Saturday Critical Action – Check Your Fund Expenses

by | 21Jul2018 | Critical Actions, Expense ratio, Investing | 0 comments

Welcome to the Saturday Critical Action. Each Saturday we take the weekly action from Jonathan Clements‘ blog Humble Dollar and “militarize” it for you. Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get…free. Here is this week’s critical action:

CHECK YOUR FUND EXPENSES. If you own index funds, aim for weighted average annual expenses below 0.2%. If you own actively managed funds, you’ll pay more—but allocate enough of your portfolio to index funds to keep your average below 0.4%. By holding down costs, you’ll keep more of what you make, plus low-cost funds typically outperform high-cost competitors.


In the military, we’re blessed with the Thrift Savings Plan (TSP) and its industry leading low expenses. Outside of the TSP, if you want to keep your costs down you should just go with Vanguard. Their unique structure makes them a non-profit, unlike their competitors, so no matter what you invest in you know it will be among the lowest cost investments available. Admittedly, though, there is a price war and you can find the same funds for even lower costs at Schwab and Fidelity.

Whatever you invest in, take the time to look up the investments at Morningstar. Just type your investment in the search bar at the top and check the expense ratio. As an example, I typed in VTI, which is the Vanguard Total Stock Market Exchange Traded Fund (ETF). The expense ratio of 0.04% is circled in red:

As Mr. Clements mentions, if the expense ratios for index funds are more than 0.2% then you are paying too much. You should try to keep the total expense ratio of all your investments less than 0.4%. If you don’t know how to measure that, you really should just sign up for Personal Capital and use that to track your total portfolio. It’ll calculate that and more for you, and it’s what I use.


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