Hi Emily - I'm assuming you are referring to the expense ratio of the funds. If so, it depends on the type of funds. If they are stock funds then that rate is reasonable. If they are bonds funds or index funds those expense ratios are high.
Hi Emily. In my opinion, investors are too focused on the COST of various investments and not focused enough on the VALUE those investments provide. Instead of focusing on the cost, I would look for funds that meet your risk and return objectives. I look for funds that have outperformed their peers (i.e. funds with a comparable investment objective) over various periods of time and under different market conditions with an acceptable amount of risk. I look at how the funds perform during market rallies and also during declines. If you're a conservative investor, you probably won't want the fund with the highest long term return if it exposes you to periods where you could lose 15-20%, or more than you are comfortable losing.
Risk and return are more important to me than fees because if a fund's fees and expenses hurt its returns, with no-load or load-waived funds, you are not obligated to hold any fund that is not meeting your expectations. You can always sell your fund and look for another that better meets your needs. I would stay away from funds with front or back-end sales charges or commissions.
If the funds you own are appropriate and meet your risk and net return (after fees) objectives and expectations, then there is no need to change.
Emily - Cost means everything when it comes to investing. The higher the expense of your investments, the less your return will likely be in the long-run. Morningstar is pretty much the end-all, be-all when it comes to mutual fund research. Morningstar has literally spent hundreds of millions of dollars on their star ranking system, which is a system that tries to identify funds that should do well in the future. They published an article a few years ago that indicated low expenses are an even a better predictor of long-term fund performance than their own ranking system. The link to the article is below:
Bottom line, the higher the expenses are in your investments, the less your return will be in the long-run. It really comes down to math. Trying to pick "winners" is a losing battle. Standard and Poors tracks actively managed fund performance versus their benchmarks an on ongoing basis (google SPIVA study), and the benchmarks come out ahead by a large margin in the long-run. Bottom line, focus on what you can control: your portfolio allocation and expenses. You can't control or predict the market, nor can anyone else out there, despite what the media and clever advertising would like for you to believe. As Don alluded to, the cost is relative to the type of fund you are using. T Rowe has some good low-cost funds, as well as firms like Vanguard. Happy investing!
Brian Pinkston, CFA, CFP®, AIF Financial Advisor Anchorage, AK
That is a great question. It is unfortunate that more investors don't pay attention to their investment costs, since that is one of the few things you can control with your investment plan, and one of the most important factors. Often, investors receive much lower returns than the indexes/benchmarks, and that return difference is usually close to the amount of costs they are paying. This is a primary reason that most actively managed mutual funds don’t beat their benchmarks - COSTS. Anyone who tells you costs are not important is often receiving a commission paid from those costs.
The most recent research showed that the average mutual fund expense ratio was about 1.40% for equity funds, so your funds are about half the average. Not bad. You also need to pay attention to the fund turnover, because the trading costs are not part of the expense ratio, and the more they trade the more you pay in trading fees. And like all the other costs, that lowers your return.
Dear Emily, You are wise to consider the cost of investing. T. Rowe Price is a good shop (according to Morningstar research) and the expense ratios you quoted are reasonable for active management. The debate over active versus passive (indexing) management is alive and well. Your SEP IRA is a good place for high quality active management as tax efficiency is not a factor. So, you are in good hands. If lower cost is your primary objective, take a hard look at index funds.
As others have said, it depends on your goals, objectives, etc. I would agree if you do not want the active management you will receive at your current investment provider, then your fees are likely high.
The nice part about having a SEP IRA is you can transfer to a traditional IRA if you would like to leave your current provider for another.