The Thriving Landscape of Low-Cost Investments

Demand for cost-effective investment products, along with competition among a multitude of funds, has been important in driving down average expense ratios across the industry over the past 25 years, minimizing costs for investors and thereby improving their fund’s performance.

Even seemingly small annual decreases in fund fees can translate into big savings over time, potentially amounting to tens of thousands of dollars. This financial windfall is especially helpful for middle-income Americans, offering a healthy boost to their long-term financial well-being.

In 2022, the average expense ratios of equity mutual funds and bond mutual funds dropped to 0.44% and 0.37%, respectively. That’s less than half of what they were in 1996, allowing investors to retain a meaningfully greater share of their investment gains.

Similarly, target date mutual funds, a favorite among younger 401(k) participants and households saving for education, have seen their average expense ratio plummet by an impressive 52% over the past 14 years.

The way the market works has made investment costs go down. People preferring to pay financial advisors separately from their investments has led to the rise of "no-load" funds that don't have extra charges. Also, as investments grow in value, the impact of certain fixed costs on overall expenses has become smaller.

Another driving force behind this decline in expense ratios is the increased adoption of index mutual funds and ETFs, known for their cost-effectiveness. These investment products have experienced significant decreases in average expense ratios, thanks to economies of scale and heightened competition.

Approximately 55% of US households own funds, with the majority being middle-income earners who use funds primarily for retirement savings. In addition, a vast majority of savers who own mutual funds consider fees and expenses when selecting mutual funds.

Investment costs going down represents a big financial win for retirement savers. It helps improve Americans’ long-term financial well being.

Low fees for investment funds are crucial for American savers because they help maximize returns on investments, allowing individuals to keep more of their money and potentially grow their savings more efficiently over time. As we navigate the retirement landscape, one thing remains clear: low-cost investments shape millions of Americans' financial futures.

Secure Financial Future invites you to join our action network. Together, let's champion policies that safeguard your investments and pave the way for a future marked by financial confidence and prosperity.