Frugality Pays with Target-Date Funds
Every basis point eats into these long-term investments, and fees vary widely.
When selecting a target-date fund, don't overlook expenses.
That's a take-home message from Morningstar's forthcoming Target Date Series Ratings and Reports. We've made price a key component in our rating system for target-date series because over the many years that an investor will likely hold a target-date fund, the compounding advantage of lower expenses can add up to a sizable effect on that investor's nest egg at retirement.
In our target-date series ratings and reports, which are due out in September, we've found a dramatic range of expenses among the 40 target-date fund families that qualify for our universe. The difference between the cheapest and most expensive target-date series amounted to more than 120 basis points annually. That's a huge disparity that any discerning investor (or prudent fiduciary) should closely scrutinize.