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Mutual-fund fees decline as stocks rise and investors get smarter

Mutual-fund fees are dropping as the stock market rises, and as investors are becoming more aware of expenses
Fees in mutual funds decline ... slowly
Investors are wising up: Money is pouring into lower-fee mutual funds, study says

Mutual-fund fees are declining as the stock market rises and investors become savvier about expenses, according to a new study.

The sharp rise in share prices last year triggered discounts in which fees in many funds dropped as the assets in those portfolios rose, according to the analysis by fund tracker Morningstar Inc.

The price reductions, known as breakpoints, automatically kick in based on asset size. The savings were most pronounced in stock funds.

The average fund investor paid 0.71% in expenses last year, or 71 cents for each $100 invested.

That’s down slightly from 0.72% in 2012. The figure has slowly fallen from 0.95% in 2000.

Based on the funds themselves -- as opposed to what investors actually pay – the average cost is higher at 1.25%, according to Morningstar. That’s down from 1.28% in 2012 and 1.47% in 2003.

The data show that individual investors, including those in 401(k) retirement accounts, are becoming much smarter about expenses.

During the dot-com boom in the late 1990s, investors shrugged off concerns about high fees. Paying expenses that sometimes approached 2% didn’t seem like much when the stock market was soaring.

That mentality has steadily shifted in the wake of two bear markets that decimated many 401(k) accounts.

Last year, 95% of net inflows went into funds in the cheapest 20% of their investment categories. In the two years before that, the inflow number actually topped 100% as money rushed out of more expensive funds.

In the 1990s, by contrast, only 56% of net inflows went to the least expensive funds.

Copyright © 2014, Los Angeles Times
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