Recent developments in the international finance news will lead many people to think differently. If you see nickels lying on the street, would you bother to stop to pick it up? Some may think that that amount is negligible considering the economic predicament we are in now. You did not pick up the nickels and continue walking in the hope that you might find bigger amount lying ahead. The situation these days of the index fund is not exactly the same with situation above, but a parallelism could be drawn from it.
The Seemingly Negligible Expense Cut of Companies
As published in Time Money, the Fidelity Investments take on the Vanguard by lowering their fee for investors. The said company said in its press release that July 1 will mark the start of reduction of expenses on 27 of its index mutual funds, equity, and exchange traded funds. This act of lowering their fees is almost negligible because Fidelity is such as big company that has millions of investors on its side. The issue here though is not how low their fees get, but whether you as an investor will get something out of it.
Commoditization of Index Funds
Grocery products are not the only one in hectic competition these days. Even the financial institutions engaging in mutual funds were prompted to make efforts to sell their business to investors. Companies like Vanguard, Fidelity, and Charles Schwab are on a tight rivalry on who could offer the lowest fees even if just by a few centavos difference. Today, you, as an investor, could shop to your heart’s contentment on where you could save the most.
Differences in Investing Before and Now
The financial situation in the 1980s is very different from what we have today. Before, it would not be wise for you to opt for refinancing of your house mortgage unless you are getting at least 2% off your existing rate. The offers and the choices that you have then are not as plenty as you have now. Today, it does not matter how much you could shave off. Rather it becomes an issue of being a worthy deal if ever you decide to jump ship and if the investment will give you the best deal.
What Is the Refinancing Trend Today?
More than two decades ago, your goal was to get as much as 2% off from your current rate. Corporate Finance News Today, however, tells you otherwise. As the competition changed and the general economic situation changed, experts are already suggesting that refinancing is good if you could achieve even a half percentage off your mortgage rate.
What to Consider When Making the Switch
Financial experts are advising you to consider the following before deciding.
- Determine all the expenses involved starting from the transaction fees up to tax bills. Be sure that you know every nitty-gritty of the details and the cost of the process that you need to make.
- It is not wise to switch right away if short-term capital gains are involved because it has a higher tax rate compared to long-term gains. It would be better to wait for some time until you have it long enough to qualify for long-term tax rate.
When Not to Opt for Refinancing
Do not engage in refinancing if the expenses and all the hassle that you will experience cannot be compensated by the amount that you can save by switching. You will know the answer to this after you have carefully considered all that is asked above. Picking up a few nickels is not worth it if you have to spend a lot more just to do that act. There are times when those menial tasks that you need to undergo to switch is so tiring and time consuming that you end up losing rather than saving.
Should You Wait for a Bigger Drop in Fees
The way things are now, you cannot expect that the companies are still willing to offer a lower fee for the benefit of the investors. It does not matter if it is just pennies that you are going to pick up, as long there are plenty of pennies waiting for you. Honestly, this is the best situation that an investor could ever hope for.
Gains and losses are always part of the consideration if you are planning to make a switch. Do not forget though that money is not everything and there are other aspects as well that you need to look into like the news on finance and the hassle that it will bring vis-à-vis the gain that you would make.