Do ETF managers charge management fees on top of transaction fees?
I see that ETFs do work very similar to diversification of individual stocks following either an industry or an index. I am thinking of changing my strategy to reduce my cost of investing which at this point is quite high, around 1.5%.
I will like to know if I go for the ETFs will the ETF fund charge me a management fee even if I paid a broker a transaction fee to buy securities for that ETF?
Here is what my trading site has to say about it:
Folio Investing has a solution — with the Folio Unlimited Plan and our
trading windows, you'll never pay another commission to invest in your
favorite ETFs.
Of course Folio Unlimited Plan is not what I am going to pay, but if I choose their not-unlimited plan, then I will only pay per trade.
Any observations are welcomed.
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All ETFs have management fees, but this fee is built into the share price. You will not receive a statement that says "0.10% management fee". Brokers can also charge recurring fees for using their service.
Note that buying sector funds is not necessarily the same as diversifying with a particular stock. When you buy a sector index, you're buying everything in the sector -- good and bad. If ETFs are your primary investment vehicle, I'd look at using broader indexes to diversify. (ie. Total Stock Market, Large-Cap Index, Small-Cap Index, etc) There are many questions on this site exploring this issue.
ETF's have expenses (including management fees), but much lower than mutual funds. Yes, they charge money for management, check the fund prospectus for details.
Here's a list of ETF's that can be sorted by the expense ratio.
If you're genuinely concerned about paying fees and lowering your expenses while investing primarily in ETFs, perhaps consider switching to a broker that offers their own range of ETFs?
For example, Charles Schwab has a considerable number of ETFs with low expense ratios, and if you're a Schwab account holder, they don't charge commissions for the trades themselves - which is helpful if you want to diversify by putting your money in several different sector ETFs.
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