Bogleheads® Live
Dr. Sunil Wahal on hidden fund costs
Jun 17, 2022
Dr. Sunil Wahal, a finance professor and director at Arizona State University's Center for Investment Engineering, unpacks the hidden costs of mutual funds that often remain overlooked. He discusses the impact of trading costs and how they can erode returns, using relatable examples for clarity. Wahal explains the challenges investors face during mutual fund redemptions and contrasts the performance of active versus passive funds. He emphasizes the importance of financial literacy, particularly regarding share lending and the benefits of lower-cost investment options like ETFs.
40:12
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Quick takeaways
- Investors must recognize the significant impact of hidden costs in mutual funds, which can detract from overall long-term returns.
- Understanding the distinction between mutual funds and ETFs is vital, as ETFs often reduce transaction costs and personal financial impact.
Deep dives
Understanding Mutual Fund Costs
Mutual funds come with various costs that can significantly impact an investor's returns. While explicit costs like expense ratios, trading fees, and advisor commissions are well-known, there are also less visible costs that can be more detrimental. These unseen costs include trading costs, tax externalities, and performance externalities, which may range from 50 to 100 basis points. It's crucial for investors to be aware of these hidden expenses, as they can substantially affect long-term investment performance.
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