Course 303: Choosing an Index Fund
Know the Costs
In this course
1 Introduction
2 Know Which Index the Fund Follows
3 Know Your Options
4 Know the Tax Effects
5 Know the Costs

Another common assumption about indexing is that all index funds are cheap. Because they don't demand the resources of active management, they certainly ought to be. But some index funds charge surprisingly high annual expenses. Consider this: Transamerica Partners Stock Index DSKIX, one of the priciest no-load S&P 500 index funds in May 2011, takes a 0.65% bite out of your investment every year. That is awfully steep when you consider that the Schwab S&P 500 Index SWPPX charges a modest 0.09% fee.

Of course, you might willingly pay more for some index funds, such as Vanguard FTSE Social Index (0.29%), because you want the socially responsible screens it applies in deciding which companies to include in its index. But all things being equal, cheaper is better.

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