Please consider the investment objectives, risks, charges, and expenses carefully before investing in Mutual Funds. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
Does that sound familiar? If you scroll to the bottom of this webpage, you will see this common language encouraging you to read the prospectus of any mutual fund you are considering for purchase. But even if you heed the call to read this legally required disclosure, you probably aren't seeing the whole picture.
For example, did you know that funds also produce another document that discloses how much the fund pays in trading commissions? Those expenses are not included in the fund's expense ratio and are typically expressed as a dollar amount on a financial statement that can be found in the Statement of Additional Information (SAI).
This is just one example of the type of diligence that you, or an advisor on your behalf, should be conducting when considering the inclusion of mutual funds and Exchange Traded Funds(ETFs) in your portfolio. Funds and ETFs are required to produce these disclosures in prescribed formats. Throw in holdings reports, typically produced semi-annually but sometimes more frequently, and you have the information you need to start making informed decisions.
This week I share the July 2017 Issue Brief from DFA titled Getting What You Don't Pay For. It provides a quick insight into why the information found in documents such as prospectuses and SAIs matters. Enjoy the short read and have a great weekend!