![]() Just because the ETF doesn't buy shares of stock, that doesn't mean it doesn't own stock. It does this through a unique device called the creation unit. It puts the burden on the people or firms causing the trades. By not buying stock, the ETF avoids all kinds of charges. This may sound strange: The fund holds stock but doesn't buy stock. Why ETFs may have lower feesĮTFs avoid many of these fees because the fund usually doesn't buy or sell the stock held in its portfolio. The size of the expense ratio determines how much money the investor ends up with. And, it's not that easy to find out what fees are contained in the "other expenses" category. Many costs are included in the expense ratio, but typically only 3 are broken out: the management fee, the 12b-1 distribution fee, and other expenses. It's the percentage of assets paid to run the fund. In a mutual fund's prospectus, after the load disclosure is a section called "Annual Fund Operating Expenses." This is better known as the expense ratio. Sometimes you need to pay more for a higher level of service, but not in index-based products. Smaller fees equal more money in your pocket. Lower fees should be one of your top priorities in any investment product. But the sad fact is that many investors never consider fees when evaluating an investment. This is one area where investors should focus a lot of their attention. Fees and profitsįees are fairly consistent, in the sense that they consistently eat into your profits (also known as your return on investment, or ROI). One of the basic tenets of investing is "Don't pay more in fees than necessary." You can't control whether you'll make a profit or loss on any investment, but you can control what you pay to acquire and hold the investment. ![]()
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