{"id":6326,"date":"2013-05-08T12:03:25","date_gmt":"2013-05-08T19:03:25","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=6326"},"modified":"2016-12-21T07:30:38","modified_gmt":"2016-12-21T15:30:38","slug":"hospital-charges-crazy-check-your-retirement-fund-fees","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/hospital-charges-crazy-check-your-retirement-fund-fees\/","title":{"rendered":"Hospital Charges Crazy? Check Your Fund Fees"},"content":{"rendered":"

Americans have long known that medical care is much, much cheaper abroad. What they didn’t know until recently is that the same procedure at one hospital can cost a fraction even across town.<\/p>\n

Treating a heart attack, for instance, costs $89,000 in one Miami hospital and more than $166,000 a few miles away,\u00a0reports\u00a0The Washington Post<\/em><\/a>, using new\u00a0federal government data<\/a>. A joint replacement in\u00a0Washington, D.C. ran $30,000 in one place and nearly $69,000 nearby.<\/p>\n

There are a lot of complex reasons why healthcare prices vary so widely. A big one is industry secrecy; hospitals don’t want their competitors to undercut them, so everyone keeps quiet.<\/p>\n

\"retirement<\/a><\/p>\n

As shocking as the gaps in hospital charges are \u2014 and a 300% variance in the same zip code does make you scratch your head \u2014\u00a0it’s nothing compared to the impact of retirement fund fees<\/a>.<\/p>\n

This is especially true for retirement savers. How do funds charge you? Through a seemingly small fee that pays the managers who make the underlying investments, reported as part of the total “expense ratio.”<\/p>\n

Active managers argue that their retirement fund fees are reasonable because they offer the potential for a higher return, by which they mean “higher than the market itself.”<\/p>\n

A couple of problems present themselves immediately. The biggest is that very few of them actually achieve their stated goal in any given year,\u00a0especially after you subtract their own fees<\/a>. Maybe one in five,\u00a0on a statistically significant basis<\/a>.<\/p>\n

Could you manage to pick those few winning managers, year after year? Vanguard Group looked at this question in depth, and your chances are\u00a0about the same as flipping a coin<\/a>.<\/p>\n

Okay, you might say, I’ll buy an S&P 500 index fund and go to sleep for a few years. Well, careful now, the “hospital charges” trap is in your path.<\/p>\n

Turns out, there are a lot of funds with S&P 500 in their name and which appear to own the index. Yet their retirement fund fees\u00a0are nowhere near the same.<\/p>\n

To look at two extremes, we ran a Lipper screen on funds that own the popular, broad U.S. stock index. We found the Rydex Series Trust S&P 500 Fund Class C (RYSYX) at an expense ratio of 2.26% and the Vanguard S&P 500 ETF (VOO) at an expense ratio of 0.05%.<\/p>\n

To be fair, these are very different products. The Rydex fund is managed. At this writing, for instance, it holds nearly 25% cash,\u00a0according to Morningstar<\/a>. It’s no index fund, even if S&P 500 is part of the name.<\/p>\n

There’s no pretense of talent or even activity over at Vanguard’s VOO fund. Look under the hood there and\u00a0you’ll find nearly 99% stock<\/a>\u00a0and tiny bit of cash, essentially a snapshot of incoming dividend flows soon to be redistributed back into shares.<\/p>\n

Comparing retirement fund fees<\/h2>\n

We ran both funds\u00a0through the fund analyzer at FINRA<\/a>, an industry-run regulator. Imagine $100,000 earning a market return of 7% over two decades. All things being equal, what happens?<\/p>\n

The managed fund ends up at a balance of $246,256 while the passive fund ends at $383,118. Shockingly, total fees at the active Rydex fund come to $73,357 vs. $2,108 at the passive Vanguard fund.\u00a0That’s almost 35 times more expensive<\/a>!<\/p>\n

Arguably, a retirement investor would never own this fund. Likewise, there must be \u00a0at least one active S&P 500 fund manager out there who can say he or she beats the market in a way that matters to retirement-oriented investors, consistently and cheaply.<\/p>\n

It’s just that your chance of owning the right fund during the right year is exactly that \u2014 chance.<\/p>\n","protected":false},"excerpt":{"rendered":"

Americans have long known that medical care is much, much cheaper abroad. What they didn’t know until recently is that the same procedure at one hospital can cost a fraction … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":6327,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[3,20],"tags":[],"yoast_head":"\nHospital Charges Crazy? Check Your Retirement Fund Fees | MarketRiders.com<\/title>\n<meta name=\"description\" content=\"There are a lot of funds with S&P 500 in their name and which appear to own the index. 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