The Bogleheads' Guide to Investing, 2nd Edition

Chapter Nine Costs Matter: Keep Them Low

The shortest route to top quartile performance is to be in the bottom quartile of expenses.

—Jack Bogle

We are accustomed to believing that the more we pay for something, the more we receive. Sorry; this is not how it works when buying mutual funds. Every dollar we pay in commissions, fees, expenses, and so on is one dollar less that we receive from our investment. For this reason, it’s critical that we keep our investment costs as low as possible.

Most investors have little idea of the many kinds of costs, disclosed and undisclosed, that are associated with investing. It’s estimated that the total of all costs in the U.S. equity market (not just mutual funds) is about $300 billion annually. We are talking about advisory fees, brokerage commissions, customer fees, legal fees, marketing expenditures, sales loads, securities processing expenses, and transaction costs. Not included in the $300 billion figure is the cost of taxes. We will discuss taxes in Chapters 10 and 11.

FEES COVERED BY THE PROSPECTUS

It’s important that we understand the different mutual fund fees and expenses that are listed in every mutual fund prospectus. Later, we will investigate mutual fund transaction costs that are little known and seldom reported. Stephen Schurr, senior editor of TheStreet.com, writes: “Death by a thousand fees isn’t going to show up in a quarterly fund statement.” For this reason, we will go over them one by one here so that you will know ...