Nathan Hale of CBS Money Watch has an interesting blog (link below) on the real cost of actively managed mutual funds. He references an article in World Economics by professor Ross Miller. Miller argues that since most actively managed mutual funds are only partially actively managed (somebody is picking the stocks or bonds) . The majority of money in an active fund is essentially an index*, so the fees that one pays is for a small portion of the fund that is actively managed.
Bottom line according to Miller: the average fee on the portion of managed money 6.34%
*Definition of an index fund: a fund that is made up of all the stocks or bonds that meet the criteria for a category ie. S&P 500 is a fund that holds the largest 500 US stocks. Nobody is picking the stocks to hold.
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