How can I tell if a target date fund has too many fees?

Question

I've read that when investing in a target date fund (401k or IRA) there are often a lot more fees involved than other funds. These are an easy option though if you're not too sure what to invest in. Is there a way to determine how much you would lose per year in fees from a target date fund? I know I would lose some in fees, but is there a guideline on how much is too much that would make it better to find different funds to invest in?

JohnFx · Answer

Your broker should be able to tell you the fees, and this information is available on sites that give stock quotes. Look for the Net Expense Ratio. Be aware that with employer plans (i.e. 401k funds) they have ways to hide extra fees, so you are probably paying a few extra % than what is quoted.
What is too expensive? That's subjective. However, my person rule of thumb is I won't buy anything with a Net expense ration over 1%, and usually I look for WAYYY under that.
You can't control much about future performance of an investment, but drag on your returns from fees is the one thing you CAN predict.

How can I tell if a target date fund has too many fees?

One Answer

Add your own answers!

Ask a Question