Article - The Hidden Costs of Mutual Funds - WSJ

Great article that Scott Dougan shared with me from the Wall Street Journal a few days ago addressing all of the hidden costs inside of Mutual Funds and how even experts in the industry have a tough time adding them all up. I've included some of the best excerpts below and a link to the entire article at the bottom.

How much does it cost you to own a mutual fund? Probably a lot more than you think.

In selecting mutual funds, most investors know to check the expense ratio, the standard measure of how costly a fund is to own. U.S.-stock funds pay an average of 1.31% of assets each year to the portfolio manager and for other operating expenses, according to Morningstar Inc.

But that's not the real bottom line. There are other costs, not reported in the expense ratio, related to the buying and selling of securities in the portfolio, and those expenses can make a fund two or three times as costly as advertised.

One reason trading costs go unreported is their complexity, which leaves the fund companies in disagreement about exactly how to calculate those costs. Trying to quantify a fund's trading expenses can be about as easy as performing brain surgery.

"The average investor can't really even begin" to get a strong grasp on these additional costs, says Richard Kopcke, an economist at the Center for Retirement Research at Boston College who co-wrote a recent study about fees and trading costs of mutual funds in 401(k) plans. "There's just not enough information. Not even close."

Link to Full Article