Cheap index funds just hit a huge milestone. VOO, Vanguard's S&P 500 fund, became the first ETF ever to hold $1 trillion.
It charges almost nothing. The fee is just 0.03% a year.
So the cheap, hands-off funds look like the clear winner. But the money pouring into new funds tells a stranger story.
Most new funds on the market aren't cheap index funds at all. Most are "active funds".
Roughly 8 in 10 ETFs launched lately are active. A manager or a set rule picks the holdings, instead of just tracking an index.
And investors are buying in. Of the $866 billion that went into U.S. ETFs this year, $313 billion landed in active funds.
That's about 36 cents of every new dollar. "Active management has arrived in full force in the ETF landscape," said Cinthia Murphy of TMX VettaFi.
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Forget the old image of a star manager picking the next Apple. Many of these new active funds are really options machines.
They trade options and other deals on their own. Each one is built to do a single job.
Some try to boost the income you earn on stocks. Others cap your losses in a drop, but cap your gains too.
So think of them less like a fund. Think of them more like a tool, and tools come at a price.
The old stock-picking way mostly struggled anyway. Last year, 79% of large-company fund managers couldn't beat the S&P 500.
That was the 16th year in a row that most of them lost to the index. So paying up for a manager rarely paid off.
The label on a fund tells you little. The fee inside it tells you more.
Here's where it hits your wallet. The average passive stock fund charges 0.14% a year.
The average active one charges 0.44%. New ETFs in 2026 cost even more, at 0.71% on average.
That gap looks tiny on paper. Over many years, it isn't.
"Fees come directly out of return," said Zachary Evens of Morningstar. Pay more, and you keep less.
Say you put in $1,000 a year for 40 years, and you earn 8% a year. At VOO's tiny fee you'd end with about $276,000, but at 0.71% you'd end with about $231,000.
That's roughly $49,000 handed to the fund company. Higher fees can still be worth it.
They make sense if a fund truly guards you in a crash or saves you on taxes. The rest of the time, the fee is just money that isn't growing for you.
Fees come out every year, in good times and bad. They don't care how the fund does.
The cheap funds won the last decade. The bill for the next one is already creeping up.
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